WORLD TRADE  
ORGANIZATION  WT/DS308/R 
7 October 2005 
 (05-4310) 
 Original:   English 
  
 
     
 
   
MEXICO – TAX MEASURES ON SOFT DRINKS 
AND OTHER BEVERAGES 
  
Report of the Panel 
 
 
 
 
  WT/DS308/R 
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 TABLE OF CONTENTS 
Page  
 
I. INTRODUCTION ................................................................................................................... .1 
II. FACTUAL ASPECTS ..............................................................................................................2  
A. THE MEASURES ...........................................................................................................................2  
B. RELEVANT MEASURES ................................................................................................................2  
C. PRODUCTS INVOLVED .................................................................................................................2  
III. PARTIES' REQUESTS FOR FIND INGS AND RECOMMENDATIONS.........................3  
IV. ARGUMENTS OF THE PARTIES ........................................................................................5  
A. REQUEST FOR PRELIMINARY RULING ..........................................................................................5  
B. FIRST WRITTEN SUBMISSION OF THE UNITED STATES ................................................................5  
1. Introduction................................................................................................................... ............5  
2. Legal argument ................................................................................................................. ........5  
(a) The IEPS is an internal tax.................................................................................................... ......6  
(b) The HFCS soft drink tax and distribution tax are inconsistent with GATT 
Article III:2, first sentence .................................................................................................. ........6  
(i) Soft drinks and syrups sweetened with HF CS and soft drinks and syrups sweetened 
with cane sugar are like products.............................................................................................. .6 
Physical char acteristics....................................................................................................... ....................... 6  
End-uses and channels  of distribution.......................................................................................... ............. 7  
Consumer preferences ........................................................................................................... .................... 7  
Tariff cla ssification .......................................................................................................... ......................... 7  
(ii) Soft drinks and syrups sweetened with HF CS are taxed in excess of soft drinks and 
syrups sweetened with cane sugar ..............................................................................................7  
HFCS soft drink tax............................................................................................................ ....................... 7  
Distributio n tax............................................................................................................... ........................... 8  
(c) The IEPS is inconsistent with Article  III:2, second sentence, of GATT 1994 ...........................8  
(i) The HFCS soft drink tax as applied to HFCS  is inconsistent with GATT Article III:2, 
second sentence................................................................................................................ ...........8  
HFCS and cane sugar are directly co mpetitive or substitu table pro ducts ................................................. 8  
Physical char acteris tics....................................................................................................... ............... 9  
End uses and consumer preferences .............................................................................................. .... 9 
Channels of distribution....................................................................................................... ............ 10  
Tariff cla ssification.......................................................................................................... ................ 11  
Price relationships and comp etition in the marketplace................................................................... 11  
Summary on direct competiti on and subs titutab ility ....................................................................... 12  
HFCS and cane sugar ar e not simila rly taxed.................................................................................... ...... 12  
HFCS soft drink tax is applied so as to afford protection to do mestic production.................................. 12  WT/DS308/R 
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 (ii)
 The HFCS soft drink tax and distribution tax as applied to soft drinks and syrups is 
inconsistent with GATT Artic le III:2, second sentence.............................................................13  
Soft drinks and syrups sweetened with cane sugar are directly competitive or substitutable 
with soft drinks and syru ps sweetened with HFCS ................................................................................ .1 3 
Soft drinks and syrups sweetened with HFCS an d soft drinks and syrups sweetened with cane 
sugar are not si milarly taxed .................................................................................................. ................. 14  
The HFCS soft drink and distribution tax is app lied so as to afford protection to domestic 
production ..................................................................................................................... .......................... 14  
(d) The HFCS soft drink tax, distribution ta x and reporting requirements applied on the 
use of HFCS are inconsistent  with GATT Article III:4 ............................................................15  
(i) HFCS and cane sugar are like products...................................................................................15  
(ii) IEPS is a law affecting the use of HFCS...................................................................................15  
(iii) IEPS accords less favourabl e treatment to HFCS ....................................................................16  
3. Conclusion ..................................................................................................................... ..........16  
C. FIRST WRITTEN SUBMISSION OF MEXICO ..................................................................................17  
1. Introduction................................................................................................................... ..........17  
2. Facts .......................................................................................................................... ...............18  
(a) The importance of the Mexican sugar industry ........................................................................18  
(b) The NAFTA negotiations ......................................................................................................... 18 
(i) The United States requests changes..........................................................................................19  
(ii) Subsequent d evelopments........................................................................................................ ..20 
(iii) Throughout this time, the United States recognized  the existence of a genuine dispute...........20  
(iv) The United States' refusal to submit to dispute settlement........................................................21  
(c) The decision to impose the IEPS on certain beverages ............................................................21  
3. Legal arguments................................................................................................................ ......22  
(a) This dispute arises out of a dispute unde r the NAFTA regarding bilateral trade in 
sweeteners..................................................................................................................... ............22  
(b) Mexico requests a preliminary ruling:  the Panel should decline to exercise its 
jurisdiction ................................................................................................................... .............22  
(c) Request for specific recommendation.......................................................................................23  
(d) The measure was not intended to afford pr otection to domestic production within the 
meaning of Article III of the GATT 1994.................................................................................24  
(e) In the event of any inconsistency, the me asure is justifiable under Article XX(d)...................24  
(i) There was no "arbitrary or unjustifiable di scrimination between countries where the 
same conditions prevail"....................................................................................................... ....27  
(ii) The measure is not a "disguised restriction on international trade"........................................29  
4. Conclusion ..................................................................................................................... ..........30  
D. OPENING STATEMENT OF THE UNITED STATES AT THE FIRST MEETING OF THE PANEL ............30  
1. Article XX(d) .................................................................................................................. .........31   WT/DS308/R 
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 2. Developing countries........................................................................................................... ....32  
3. Recommendations................................................................................................................ ...32 
4. Preliminary ruling request..................................................................................................... 32 
E. OPENING STATEMENT OF MEXICO AT THE FIRST MEETING OF THE PANEL ...............................34  
1. Introduction................................................................................................................... ..........34  
2. The origin of the IEPS tax and the importance for providing relief for the 
Mexican sugar industry......................................................................................................... .36 
3. Mexico's request for a preliminary ruling............................................................................38  
4. Mexico's defence under Article XX(d) of the GATT 1994 ..................................................40  
5. Response to the European Communities' third party submission .....................................41  
6. Conclusions.................................................................................................................... ..........42  
F. CLOSING STATEMENT OF THE UNITED STATES AT THE FIRST MEETING OF THE PANEL ............43  
G. CLOSING STATEMENT OF MEXICO AT THE FIRST MEETING OF THE PANEL ...............................44  
H. SECOND WRITTEN SUBMISSION OF THE UNITED STATES ..........................................................45  
1. Introduction................................................................................................................... ..........45  
2. Mexico's tax measures are inconsistent with Article III of the GATT 1994......................46  
(a) Burden of proof................................................................................................................ .........46  
(b) Mexico's tax measures are inconsistent with Article III of the GATT 1994 ............................46  
(i) Mexico's tax measures on non-cane suga r sweeteners are inconsistent with 
Article III:2 of the GATT 1994................................................................................................. .47 
The United States has established a prima facie case that the HFCS soft  drink and distribution 
taxes are inconsistent with Ar ticle III:2, seco nd sentence..................................................................... .. 47 
The HFCS soft drink and distribution taxes are in consistent with Article III:2, first sentence, 
with respect to beet sugar ..................................................................................................... ................... 47  
(ii) Mexico's tax measures on soft drinks and syrups  are inconsistent with Article III:2 of 
the GATT 1994.................................................................................................................. ........48  
The United States has established a prima facie case that the HFCS soft  drink and distribution 
taxes with respect to soft drinks and syrups are inconsistent with Article III:2, first sentence ............... 48  
The HFCS soft drink and distribution taxes are in consistent with Article III:2, first sentence, 
with respect to soft drinks and sy rups sweetened with beet sugar........................................................... 49  
The United States has established a prima facie case that Mexico's tax measures affecting the 
use of HFCS are inconsistent with  Article III:4 of the GATT 1994........................................................ 50  
3. Mexico's tax measures are not justified under Article XX(d) of the GATT 1994.............51  
(a) United States' obligations under the NA FTA are not "laws or regulations".............................51  
(b) Mexico's tax measures are not designed to "secure compliance" .............................................53  
(c) Mexico's tax measur es are not "necessary"...............................................................................54  
(d) Mexico's tax measures are incompatible  with the chapeau to Article XX................................55  
4. Conclusion ..................................................................................................................... ..........56  
I. SECOND WRITTEN SUBMISSION OF MEXICO ..............................................................................57  WT/DS308/R 
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 1.
 Introduction................................................................................................................... ..........57  
2. Review of the facts ............................................................................................................ ......58  
3. The United Stat es' response ...................................................................................................5 8 
(a) The United States' characterization of the NAFTA dispute......................................................58  
(b) General comment on the United States' position ......................................................................58  
(c) The United States cannot specify what other avenues were open to Mexico ...........................59  
(d) The United States' practice under the NAFTA .........................................................................59  
(e) The United States' statements before the WTO on taking unilateral action outside of 
the WTO ........................................................................................................................ ...........59  
4. Legal submissions .............................................................................................................. .....60  
(a) This Panel's powers under the applicable "covered agreements" are broader and more 
flexible than the United States contends...................................................................................60  
(b) Mexico's measures can be ju stified under Article XX(d) .........................................................61  
(i) The United States' position on Article XX( d) is internally inconsistent....................................61  
(ii) Article XX(d) of the GATT 1994 can justify  measures necessary to secure compliance 
with laws or regulations applicable outsid e the territorial jurisdiction of the Member 
taking the measure ............................................................................................................. .......62  
(iii) The United States' distinction is not borne out in NAFTA itself ...............................................63  
(c) The nature of the Mexican measures ........................................................................................63  
(d) The measures at issue meet the necessity test under Article XX(d) of the GATT 1994 ..........64  
5. The United States has not responded to Mexico's arguments that the measures 
meet the requirements of  the chapeau of Article XX of the GATT 1994...........................65  
6. Conclusion ..................................................................................................................... ..........65  
J. OPENING STATEMENT OF THE UNITED STATES AT THE SECOND MEETING OF THE 
PANEL ............................................................................................................................... .........65  
1. Introduction................................................................................................................... ..........65  
2. Status of this dispute......................................................................................................... ......65  
3. Article XX(d) – "laws or regulations" ..................................................................................65  
4. Article XX(d) – "necessary to secure compliance"..............................................................68  
5. Issues relating to Mexico's "p reliminary ruling" request...................................................70  
6. "General principles of international law"............................................................................70  
7. Conclusion ..................................................................................................................... ..........72  
K. OPENING STATEMENT OF MEXICO AT THE SECOND MEETING OF THE PANEL ...........................72  
1. Introduction................................................................................................................... ..........72  
2. The relevance and status of the NAFTA dispute .................................................................74  
3. The Panel has greater flexibility to form ulate recommendations than the United 
States admits.................................................................................................................. ..........78  
4. The two Article III oblig ations at issue .................................................................................80   WT/DS308/R 
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 5. Mexico's defence under Article XX(d) of the GATT 1994 ..................................................80  
6. Conclusions.................................................................................................................... ..........84  
L. CLOSING STATEMENT OF MEXICO AT THE SECOND MEETING OF THE PANEL ...........................84  
1. Response to the United St ates' oral arguments....................................................................84  
(a) Paragraphs 6 and 7............................................................................................................. .......84  
(b) Paragraph 11 ................................................................................................................... ..........85  
(c) Paragraphs 16 and 17........................................................................................................... .....86  
(d) Paragraph 17 ................................................................................................................... ..........87  
(e) Paragraph 18 ................................................................................................................... ..........87  
(f) Paragraph 20 ................................................................................................................... ..........88  
(g) Paragraph 22 ................................................................................................................... ..........88  
2. Conclusions.................................................................................................................... ..........89  
M. CLOSING STATEMENT OF THE UNITED STATES AT THE SECOND MEETING OF THE 
PANEL ............................................................................................................................... .........91  
1. Introduction and the relevance and the status of the NAFTA dispute ..............................92  
2. Recommendations................................................................................................................ ...93 
3. Articl e III .................................................................................................................... .............93  
4. Article XX(d) .................................................................................................................. .........93  
V. ARGUMENTS OF THE THIRD PARTIES ........................................................................95  
A. CANADA ............................................................................................................................... .....95  
1. Introduction................................................................................................................... ..........95  
2. Mexico's request for a preliminary ruling............................................................................95  
3. The Panel's authority to decline jurisdiction........................................................................96  
B. CHINA ............................................................................................................................... .........97  
1. Introduction................................................................................................................... ..........97  
2. Whether the HFCS can be deemed to be taxed in the meaning of GATT 1994 
Article III:2, second sentence, based only on the fact that soft drinks and 
beverages sweetened with HFCS have been taxed in the meaning of GATT Article III:2 seco nd sentence.................................................................................................. 97
 
3. Whether cane sugar can be established as the "like product" of HFCS under 
GATT Article III:4 conclusively with the analysis on "directly competitive and substitutable products" within the meaning of Article III:2, second sentence of 
GATT1994 ....................................................................................................................... ........98
 
C. THE EUROPEAN COMMUNITIES .................................................................................................99  
1. The preliminary ruling requested by Mexico that the panel should decline to 
exercise its ju risdiction ...................................................................................................... .....99  
2. The relationship of the WTO agreements and other international agreements .............100  
3. The claims raised by the United States under Article III:2 of the GATT 1994...............100  WT/DS308/R 
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 4.
 The defence presented by Mexico under Article XX(d) of the GATT 1994 ....................102  
D. GUATEMALA ...........................................................................................................................103  
E. JAPAN ............................................................................................................................... .......105  
1. Analysis of IEPS's conformity with the first sentence of Article III:2 of the 
GATT 1994 ...................................................................................................................... ......105  
2. Analysis of IEPS's conformity with the second sentence of Article III:2 of the 
GATT 1994 ...................................................................................................................... ......107  
VI. INTERIM REVIEW.............................................................................................................108  
A. CLERICAL AND EDITORIAL CHANGES ......................................................................................108  
B. FACTUAL ASPECTS ..................................................................................................................109  
C. ARGUMENTS OF THE PARTIES .................................................................................................109  
D. PRELIMINARY RULING .............................................................................................................109  
E. COMMENTS ON PANEL 'S FINDINGS ..........................................................................................109  
VII. PRELIMINARY RULING ..................................................................................................111  
A. INTRODUCTION .......................................................................................................................111  
B. THE PANEL 'S JURISDICTION TO HEAR THE PRESENT CASE .......................................................111  
C. MEXICO 'S REQUEST ..................................................................................................................111  
D. RULING BY THE PANEL ............................................................................................................114  
VIII.  FINDINGS....................................................................................................................... ......114  
A. CLAIMS AND ORDER OF ANALYSIS ..........................................................................................114  
1. Claims regarding soft drinks a nd claims regarding sweeteners.......................................114  
2. Claims under Articles III:2 and III:4 of the GATT 1994, regarding the 
treatment of sweeteners........................................................................................................ 115 
(a) Claims under Article III:2 of the GATT 1994 ........................................................................115  
(b) Claims under Article III:4 of the GATT 1994 ........................................................................115  
(c) Simultaneous claims under Articles III:2 and III:4 of the GATT 1994..................................116  
(d) Panel's analysis of th e simultaneous claims............................................................................116  
B. BURDEN OF PROOF ..................................................................................................................117  
1. General rule on burden of proof..........................................................................................117  
2. Burden of proof applied to the present case.......................................................................117  
C. THE UNITED STATES ' CLAIMS REGARDING SWEETENERS UNDER THE FIRST SENTENCE 
OF ARTICLE  III:2  OF GATT  1994............................................................................................118  
1. The United Stat es' claims .....................................................................................................1 18 
2. Mexico's response.............................................................................................................. ....118  
3. Article III:2, first sente nce, of the GATT 1994 ..................................................................118  
4. Panel's analysis............................................................................................................... .......119  
(a) Likeness of products ........................................................................................................... ....119   WT/DS308/R 
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 (i) Products' properties, nature and quality ................................................................................119  
(ii) Products' end-uses ............................................................................................................. .....120  
(iii) Consumers' tastes and habits..................................................................................................1 20 
(iv) Tariff classification of the products ........................................................................................12 0 
(v) Conclusion ..................................................................................................................... .........120  
(b) Taxed in excess................................................................................................................ .......121  
(i) Is beet sugar subject, directly or indirectly , to the soft drink tax and the distribution 
tax?........................................................................................................................... ...............121  
Soft drink tax................................................................................................................. ........................ 121  
Distributio n tax............................................................................................................... ....................... 122  
(ii) Do the soft drink tax and the distribution ta x subject imported sweeteners to internal 
taxes in excess of those applied to like domestic sweeteners?................................................123  
5. Conclusion ..................................................................................................................... ........124  
D. THE UNITED STATES ' CLAIMS REGARDING SWEETENERS UNDER THE SECOND 
SENTENCE OF ARTICLE III:2  OF GATT  1994...........................................................................125  
1. The United Stat es' claims .....................................................................................................1 25 
2. Mexico's response.............................................................................................................. ....125  
3. Article III:2, second sente nce, of GATT 1994 ....................................................................125  
4. Panel's analysis............................................................................................................... .......126  
(a) Directly competitive or substitutable products .......................................................................126  
(i) Products' properties, nature and quality ................................................................................126  
(ii) Products' end-uses ............................................................................................................. .....127  
(iii) Consumers' perceptions and behaviour..................................................................................127  
(iv) Tariff classification of the products ........................................................................................12 8 
(v) Determination by other authorities.........................................................................................128  
(vi) Conclusion ..................................................................................................................... .........128  
(b) Not similarly taxed............................................................................................................ ......129  
(c) So as to afford protection to domestic production ..................................................................129  
5. Conclusion ..................................................................................................................... ........132  
E. THE UNITED STATES ' CLAIMS REGARDING SWEETENERS UNDER ARTICLE III:4  OF 
GATT  1994........................................................................................................................... ..132  
1. The United Stat es' claims .....................................................................................................1 32 
2. Mexico's response.............................................................................................................. ....133  
3. Article III:4 of GATT 1994 ..................................................................................................133  
4. Panel's analysis............................................................................................................... .......133  
(a) Likeness of products ........................................................................................................... ....133  
(b) Measures affecting the intern al use of sweeteners..................................................................134  WT/DS308/R 
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 (c)
 Less favourable treatment ...................................................................................................... .136 
5. Conclusions.................................................................................................................... ........138  
F. THE UNITED STATES ' CLAIMS REGARDING SOFT DRINKS AND SYRUPS UNDER THE 
FIRST SENTENCE OF ARTICLE III:2  OF GATT  1994.................................................................138  
1. The United Stat es' claims .....................................................................................................1 38 
2. Mexico's response.............................................................................................................. ....138  
3. Panel's analysis............................................................................................................... .......138  
(a) Likeness of products ........................................................................................................... ....139  
(i) Products' properties, nature and quality ................................................................................139  
(ii) Products' end-uses ............................................................................................................. .....139  
(iii) Consumers' perceptions and behaviour..................................................................................140  
(iv) Tariff classification of the products ........................................................................................14 0 
(v) Conclusion ..................................................................................................................... .........140  
(b) Taxed in excess................................................................................................................ .......141  
(i) Soft drink tax at the time of importation .................................................................................141  
Amendments to the LIEPS........................................................................................................ ............ 141  
Soft drink tax at th e time of im portation ...................................................................................... ......... 143  
Conclusion..................................................................................................................... ........................ 143  
(ii) Soft drink tax on internal transfers .........................................................................................14 3 
(iii) Distribution tax ............................................................................................................... ........144  
(iv) Taxes imposed  in excess........................................................................................................ ..145  
4. Conclusion ..................................................................................................................... ........145  
G. THE UNITED STATES ' CLAIMS REGARDING SOFT DRINKS AND SYRUPS UNDER THE 
SECOND SENTENCE OF ARTICLE III:2  OF GATT  1994 .............................................................145  
1. The United Stat es' claims .....................................................................................................1 45 
2. Mexico's response.............................................................................................................. ....146  
3. Panel's analysis............................................................................................................... .......146  
H. MEXICO 'S DEFENCE UNDER PARAGRAPH (D) OF ARTICLE  XX  OF GATT  1994......................146  
1. Mexico's defence ............................................................................................................... ....146  
2. The United States' response .................................................................................................146  
3. Article XX(d) of GATT 1994 ...............................................................................................147  
4. Panel's analysis............................................................................................................... .......147  
(a) Order of analysis.............................................................................................................. .......147  
(b) Designed to secure compliance w ith laws or regulations .......................................................148  
(i) To secure co mpliance ........................................................................................................... ..148  
(ii) Whether Mexico's tax measures a re designed to secure compliance......................................151  
(iii) Laws and regulations covered by paragraph (d) of Article XX ..............................................153   WT/DS308/R 
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 (iv) Conclusion ..................................................................................................................... .........155  
(c) Necessary to secure compliance with laws or regulations......................................................155  
(d) Chapeau  of Article XX...........................................................................................................155  
5. Conclusion ..................................................................................................................... ........156  
I. ADDITIONAL REQUESTS BY MEXICO .......................................................................................156  
1. Mexico's additional requests................................................................................................156  
2. The United St ates response ..................................................................................................158  
3. Panel's analysis............................................................................................................... .......158  
(a) The Panel's "d iscretion" ....................................................................................................... ...158  
(b) Determinations of fact requested by Mexico ..........................................................................161  
(c) Mexico's status as a developing country.................................................................................162  
4. Conclusion ..................................................................................................................... ........162  
IX. CONCLUSIONS AND RECOMMENDATION ................................................................162  
 WT/DS308/R 
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 LIST OF ANNEXES 
 
ANNEX A 
 
REQUEST FOR ESTABLISHMENT OF A PANEL 
 
Contents Page 
Annex A Request for the Establishment of a Panel by the United States – 
Document WT/DS308/4 A-1 
 
 
ANNEX B 
 
FAX TO THE PARTIES AND THIRD PARTIES 
 
Contents Page 
Annex B  Fax dated 18 January 2005, from the Panel to the parties 
 B-1 
 
 
ANNEX C 
 
RESPONSES AND COMMENTS BY THE PARTIES AND THIRD PARTIES 
TO QUESTIONS POSED BY THE PANEL AND OTHER PARTIES  
 
Contents Page 
Annex C-1 Responses by Mexico to Questions Posed by the Panel after the First 
Substantive Meeting C-2 
Annex C-2 Responses by the United States to Questions Posed by the Panel and 
Mexico after the First Substantive Meeting C-24 
Annex C-3 Responses by Mexico to Questions Posed by the Panel after the Second 
Substantive Meeting C-46 
Annex C-4 Responses by the United States to Questions Posed by the Panel after the 
Second Substantive Meeting C-69 
Annex C-5 Comments by Mexico on the United States' Responses to Questions 
Posed by the Panel after the Second Substantive Meeting C-91 
Annex C-6 Comments by the United States on Mexico's Responses to Questions 
Posed by the Panel after the Second Substantive Meeting C-97 
Annex C-7 Responses by Guatemala to Questions Posed by the Panel after the First 
Substantive Meeting C-110 
 
  WT/DS308/R 
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 TABLE OF WTO CASES CITED IN THIS REPORT 
 
Short Title Full Case Title and Citation 
Argentina – Poultry Anti-
Dumping Duties Panel Report, Argentina – Definitive Anti-Dumping Duties on Poultry from 
Brazil , WT/DS241/R, adopted 19 May 2003 
Argentina – Textiles and 
Apparel Panel Report, Argentina – Measures Affecting Imports of Footwear, Textiles, 
Apparel and Other Items, WT/DS56/R, adopted 22 April 1998, as modified by the 
Appellate Body Report, WT/DS56/AB/R, DSR 1998:III, 1033 
Australia – Salmon  Appellate Body Report, Australia – Measures Affecting Importation of Salmon , 
WT/DS18/AB/R, adopted 6 November 1998, DSR 1998:VIII, 3327 
Australia – Salmon  Panel Report, Australia – Measures Affecting Importation of Salmon , WT/DS18/R 
and Corr.1, adopted 6 November 1998, as modified by the Appellate Body Report, WT/DS18/AB/R, DSR 1998:VIII, 3407 
Australia – Salmon  
(Article 21.5 – Canada)  Panel Report, Australia – Measures Affecting Importation of Salmon – Recourse to 
Article 21.5 of the DSU by Canada , WT/DS18/RW, adopted 20 March 2000, 
DSR 2000:IV, 2031 
Canada – Aircraft  Appellate Body Report, Canada – Measures Affecting the Export of Civilian 
Aircraft , WT/DS70/AB/R, adopted 20 August 1999, DSR 1999:III, 1377 
Canada - Autos Panel Report, Canada – Certain Measures  Affecting the Automotive Industry, 
WT/DS139/R, WT/DS142/R, adopted 19 June 2000, as modified by the Appellate 
Body Report, WT/DS139/AB/R, WT/DS142/AB/R, DSR 2000:VII, 3043  
Canada - Periodicals  Appellate Body Report, Canada – Certain Measures Concerning Periodicals, 
WT/DS31/AB/R, adopted 30 July 1997, DSR 1997:I, 449 
Canada - Periodicals  Panel Report, Canada – Certain Measures  Concerning Periodicals, WT/DS31/R and 
Corr. 1, adopted 30 July 1997, as modified by the Appellate Body Report, 
WT/DS31/AB/R, DSR 1997:I, 481 
Canada – Wheat Exports and 
Grain Imports   
 Panel Report, Canada – Measures Relating to Exports of Wheat and 
Treatment of Imported Grain,  WT/DS276/R, adopted 27 September 2004, 
as upheld by the Appellate Body Report, WT/DS276/AB/R.  
Chile – Price Band System Panel Report, Chile – Price Band System  and safeguard Measures Relating to 
Certain Agricultural Products, WT/DS207/R, adopted 23 October 2002, as modified 
by the Appellate Body Report, WT/DS207/AB/R 
Chile – Alcoholic Beverages Appellate Body Report, 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 – Alcoholic Beverages  Panel Report, Chile – Taxes on Alcoholic Beverages , WT/DS87/R, WT/DS110/R, 
adopted 12 January 2000, as modified by the Appellate Body Report, 
WT/DS87/AB/R, WT/DS110/AB/R, DSR 2000:I, 303 
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 – 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 WT/DS308/R 
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 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 
India – Quantitative Restrictions  Appellate Body Report, India – Quantitative Restrictions on Imports of 
Agricultural, Textile and Industrial Products , WT/DS90/AB/R, adopted 
22 September 1999, DSR 1999:IV, 1763 
India – Quantitative Restrictions  Panel Report, India – Quantitative Restrictions on Imports of Agricultural, Textile 
and Industrial Products , WT/DS90/R, adopted 22 September 1999, as upheld by 
the Appellate Body Report, WT/DS90/AB/R, DSR 1999:V, 1799 
Indonesia - Autos Panel Report, Indonesia – Certain Measures Affecting the Automobile Industry , 
WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R and Corr. 1, 2, 3, 4, adopted 
23 July 1998, DSR 1998:VI, 2201 
Japan – Alcoholic Beverages II  Appellate Body Report, Japan – Taxes on Alcoholic Beverages , WT/DS8/AB/R, 
WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, DSR 1996:I, 97  
Japan – Alcoholic Beverages II  Panel Report, Japan – Taxes on Alcoholic Beverages , WT/DS8/R, WT/DS10/R, 
WT/DS11/R, adopted 1 November 1996, as modified by the Appellate Body 
Report, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, DSR 1996:I, 125 
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 
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 – Various Measures on 
Beef  Panel Report, Korea – Measures Affecting Imports of Fresh, Chilled and Frozen 
Beef, WT/DS161/R, WT/DS169/R, adopted 10 January 2001, as modified by the 
Appellate Body Report, WT/DS161/AB/R, WT/DS169/AB/R, DSR 2001:I, 59 
Mexico – Corn Syrup  Panel Report, Mexico – Anti-Dumping Investigation of High Fructose Corn Syrup 
(HFCS) from the United States , WT/DS132/R and Corr.1, adopted 
24 February 2000, DSR 2000:III, 1345 
Mexico – Corn Syrup  
(Article 21.5 – US)  Appellate Body Report, Appellate Body Report, Mexico – Anti-Dumping 
Investigation of High Fructose Corn Syrup (HFCS) from the United States – 
Recourse to Article 21.5 of the DSU  by the United States , WT/DS132/AB/RW, 
adopted 21 November 2001, DSR 2001:XIII, 6675 
Turkey – Textiles  Appellate Body Report, Turkey – Restrictions on Imports of Textile and Clothing 
Products , WT/DS34/AB/R, adopted 19 November 1999, DSR 1999:VI, 2345 
Turkey – Textiles  Panel Report, Turkey – Restrictions on Imports  of Textile and Clothing Products , 
WT/DS34/R, adopted 19 November 1999, as modified by the Appellate Body Report, WT/DS34/AB/R, DSR 1999:VI, 2363 
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 – Certain EC Products Panel Report, United States – Import Measures on Certain Products from the 
European Communities , WT/DS165/R and Add. 1, adopted 10 January 2001, as 
modified by the Appellate Body Report, WT/DS165/AB/R, DSR 20001:II, 413   WT/DS308/R 
 Page xiii 
 
 
 Short Title Full Case Title and Citation 
US – Gasoline  Panel Report, United States – Standards for Reformulated and Conventional 
Gasoline , WT/DS2/R, adopted 20 May 1996, as modified by the Appellate Body 
Report, WT/DS2/AB/R, DSR 1996:I, 29 
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 – Shrimp  Appellate Body Report, United States – Import Prohibition of Certain Shrimp and 
Shrimp Products , WT/DS58/AB/R, adopted 6 November 1998, 
DSR 1998:VII, 2755 
US – Shrimp  Panel Report, United States – Import Prohibition of Certain Shrimp and Shrimp 
Products , WT/DS58/R and Corr.1, adopted 6 November 1998, as modified by the 
Appellate Body Report, WT/DS58/AB/R, DSR 1998:VII, 2821 
US – Shrimp  
(Article 21.5 – Malaysia)  Appellate Body Report, United States – Import Prohibition of Certain Shrimp and 
Shrimp Products – Recourse to Article 21.5 of the DSU by Malaysia , 
WT/DS58/AB/RW, adopted 21 November 2001, DSR 2001:XIII, 6481 
US – Shrimp  
(Article 21.5 – Malaysia)  Panel Report, United States – Import Prohibition of Certain Shrimp and Shrimp 
Products – Recourse to Article 21.5 of the DSU by Malaysia , WT/DS58/RW, 
adopted 21 November 2001, as upheld by the Appellate Body Report, WT/DS58/AB/RW, DSR 2001:XIII, 6529 
US – Gambling Appellate Body Report, United States – Measures Affecting the Cross-Border 
Supply of Gambling and Betting Services , WT/DS285/AB/R, adopted 20 April 
2005. 
US – Wool Shirts and Blouses  Panel Report, United States – Measure Affecting Imports of Woven Wool Shirts and 
Blouses from India , WT/DS33/R, adopted 23 May 1997, as upheld by the Appellate 
Body Report, WT/DS33/AB/R, DSR 1997:I, 343 
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/DS308/R 
Page xiv  
 
 TABLE OF GATT CASES CITED IN THIS REPORT 
 
Short title Full Case Title and Citation 
Brazil  –  Internal Taxes  Working Party Report, Brazilian Internal Taxes , adopted 30 June 1949, 
BISD II/181 and 186 
 
Italy – Agricultural Machinery Panel Report, Italian Discrimination Against Imported Agricultural 
Machinery, adopted 23 October 1958, BISD 7S/60  
Japan – Alcoholic Beverages I  Panel Report, Japan – Customs Duties, Taxes and Labelling Practices on 
Imported Wines and Alcoholic Beverages , adopted 10 November 1987, 
BISD 34S/83  
US  –  Malt Beverages  Panel Report, United States – Measures Affecting Alcoholic and Malt 
Beverages , adopted 19 June 1992, BISD 39S/206 
 
US –  Nicaraguan Trade  Panel Report, United States – Trade Measures Affecting Nicaragua , 
13 October 1986, unadopted, L/6053 
 
US – Section 337 Panel Report, United States Section 337 of the Tariff Act of 1930, adopted 7 
November 1989, BISD 36S/345 
 
US  –  Sugar Quota  Panel Report, United States – Imports of Sugar from Nicaragua , adopted 
13 March 1984, BISD 31S/67  
US – Superfund  Panel Report, United States – Taxes on Petroleum and Certain Imported 
Substances , adopted 17 June 1987, BISD 34S/136 
 
US – Tuna (EEC)  Panel Report, United States – Restrictions on Imports of Tuna , 16 June 1994, 
unadopted, DS29/R  WT/DS308/R 
 Page xv 
 
 
 TABLE OF ABBREVIATIONS USED IN THIS REPORT 
  C F C      Comisión Federal de Competencia  (Federal Competition 
     C o m m i s s i o n )  
 
DSB     Dispute Settlement Body  DSU     Dispute Settlement Understanding  
EC     European Communities 
 GATT     General Agreement on Tariffs and Trade  GATT 1947    General Agreement on Tariffs and Trade 1947 
 
GATT 1994    General Agreement on Tariffs and Trade 1994  HFCS     High-Fructose Corn Syrup  IEPS  Impuesto Especial sobre Producción y Servicios (Special 
Tax on Production and Services) 
 LIEPS  Ley del Impuesto Especial sobre Producción y Servicios  
(Law on the Special Tax on Production and Services) 
 
MFN     Most-Favoured Nation 
 NAFTA    North American Free Trade Agreement  WTO     World Trade Organization   WT/DS308/R 
 Page 1 
 
 
 I. INTRODUCTION 
1.1 In a communication, dated 16 March 2004, the United States requested consultations with 
Mexico pursuant to Articles 1 and 4 of the DSU a nd Article XXII:1 of the GATT 1994, regarding tax 
measures imposed by Mexico on soft drinks and ot her beverages that use any sweetener other than 
cane sugar.1 
1.2 The United States stated that it believed that these taxes were inconsistent with Mexico's 
national treatment obligations under Article III of the GATT 1994.  In particular, they appeared to be 
inconsistent with Article III:2 of  the GATT 1994, first and second sente nces, and Article III:4 of the  
GATT 1994. 
1.3 The consultations took place on 13 May 2004.  Purs uant to its request, Canada was joined in 
those consultations. However the parties failed to reach a mutually satisfactory resolution to this 
dispute. 
1.4 On 10 June 2004, the United States requested the establishment of a panel pursuant to 
Article 6 of the DSU.2  The DSB considered this request at its  meetings of 22 June and 6 July 2004, 
and established the Panel on 6 July with standard terms of reference as follows: 
"To examine, in the light of the relevant provisions of the covered agreements cited 
by the United States in document WT/DS308/4,  the matter referred to the DSB by the 
United States in that document, and to ma ke such findings as will assist the DSB in 
making the recommendations or in giving the rulings provided for in those agreements."
3 
1.5 On 18 August 2004, the parties agreed to the following composition of the Panel: 
Chairman: Mr Ronald Saborío Soto 
  Members: Mr Edmond McGovern    Mr David Walker  
1.6 Canada, China, the European Communities, Guatemala and Japan reserved their rights to 
participate in the panel proceedings as third parties.
4 
1.7 The Panel met with the parties on 2 and 3 Dece mber 2004 and 23 and 24 February 2005.  It 
met with the third parties on 3 December 2004. 
1.8 The Panel submitted its interim report to the pa rties on 27 June 2005.  The final report was 
issued to the parties on 8 August 2005. 
                                                      
1 WT/DS308/1. 
2 WT/DS308/4. 
3 WT/DS308/5/Rev.1. 
4 Pakistan had reserved its third-party rights at the DSB meeting on 6 July 2004.  However, on 
20 August 2004, Pakistan informed the DSB that it did not want to participate as a third-party in the panel 
proceedings. WT/DS308/R 
Page 2  
 
 II. FACTUAL ASPECTS 
A. T
HE MEASURES  
2.1 This dispute concerns certain tax measures im posed by Mexico on soft drinks and other 
beverages that use any sweetener other than cane sugar.  
2.2 The tax measures concerned include: (i) a 20 per cent tax on the transfer or, as applicable, the 
importation of soft drinks and other beverages that  use any sweetener other than cane sugar ("soft 
drink tax"); (ii) a 20 per cent tax on specific serv ices (commission, mediation, agency, representation, 
brokerage, consignment and distribution), when provided for the purpose of transferring products 
such as soft drinks and other beverages that use any sweetener other than cane sugar ("distribution 
tax"); and, (iii) a number of requirements imposed on taxpayers subject to the "soft drink tax" and to 
the "distribution tax" ("bookkeeping requirements"). 
B. RELEVANT MEASURES  
2.3 The soft drink tax, the distribution tax and the bookkeeping requirements are set out in the 
following measures, which are at i ssue in this dispute: (1) the Ley del Impuesto Especial sobre 
Producción y Servicios  (Law on the Special Tax on Production and Services, or LIEPS), as amended 
effective 1 January 2002, and its subsequent amen dments published on 30 December 2002, and 31 
December 2003; and (2) related or implementing regulations, contained in the Reglamento de la Ley 
del Impuesto Especial sobre Producción y Servicios  (Regulations of the Law on the Special Tax on 
Production and Services), the Resolución Miscelánea Fiscal para 2003 (Miscellaneous Fiscal 
Resolution for the year 2003) , and the Resolución Miscelánea Fiscal para 2004 (Miscellaneous Fiscal 
Resolution for the year 2004) . 
2.4 The measures were introduced in the Mexican legi slation as a result of the amendments to the 
LIEPS approved by the Congress of Mexico and pub lished in the Mexican Official Journal ( Diario 
Oficial ) on 1 January 2002.  Since that date, the LI EPS has been amended on three occasions.  The 
amendments were published in the Official Jour nal on 30 December 2002, on 31 December 2003, and 
on 1 December 2004. 
2.5 The measures are further regulated in the Reglamento de la Ley del Impuesto Especial sobre 
Produccion y Servicios  (Regulations of the Law on the Sp ecial Tax on Production and Services) 
published in the Official Journal on 15 May 1990, in Title 6 of the Resolución Miscelánea Fiscal para 
2004  (Miscellaneous Fiscal Resolution for the year 2004) published in the Official Journal on 30 
April 2004, and in Title 6 of the Resolución Miscelánea Fiscal para 2003  (Miscellaneous Fiscal 
Resolution for the year 2003) published in the Official Journal on 31 March 2003, which identify, 
inter alia , details on the scope, calculation, payment a nd bookkeeping and recording requirements of 
the IEPS. 
C. PRODUCTS INVOLVED  
2.6 The dispute concerns two categories of products.  First, the products that will be generally 
referred to as "soft drinks and syrups".  Second, th e sweeteners used in the preparation of such "soft 
drinks and syrups" and, particularly, three types of  sweeteners:  cane sugar, beet sugar and HFCS. 
• Soft drinks and syrups :  With respect to the challenged me asures, this broad category includes 
soft drinks; hydrating or rehydrating drinks ; concentrates, powders, syrups, essences or 
flavour extracts that can be diluted to produce so ft drinks and hydrating or rehydrating drinks; 
and, syrups or concentrates for preparing soft drinks sold in open containers which use automatic, electric or mechanical equipment.  The category does not include other drinks such  WT/DS308/R 
 Page 3 
 
 
 as alcoholic beverages, beers, wine, fruit juices,  vegetable juices, water or mineral water.  
According to the available information, the Mexi can market for soft drinks is – as in other 
parts of the world – dominated by multinational companies, such as Coca Cola  and Pepsi 
Cola .  Coca Cola  controls around 71.9 per cent of the Mexican carbonated soft drink market, 
while Pepsi Cola  controls around 15.1 per cent.  The Peruvian-owned company Kola Real  
holds around 4 per cent of the market and Cadbury Schweppes  around 2 per cent.5 
• Cane sugar :  Cane sugar is a form of sucrose.  Sucrose is a disaccharide composed of 50 
percent glucose and 50 percent fructose bonded together.6  According to the Food and 
Agriculture Organization of the United Na tions (FAO), cane sugar is a non-refined, 
crystallized material derived from the juices of sugar-cane stalk and cons isting either wholly 
or essentially of sucrose.7 
• Beet sugar :  Beet sugar is another form of sucrose.   In technical terms, and although derived 
from a different source, beet  sugar may be considered to be  both chemically and functionally 
identical to cane sugar.8  The FAO defines beet sugar as a non-refined, crystallized material 
derived from the juices extracted from the root of  the sugar beet and consisting either wholly 
or essentially of sucrose.9 
• High-Fructose Corn Syrup (HFCS ): This is a corn-based liquid sweetener made using a multi-
stage production process.  It is high in fructose in relation to ordinary corn syrup.  HFCS is a 
liquid, composed of a monosaccharide mixture of  varying amounts of glucose and fructose, as 
well as small amounts of other saccharides.  HF CS exists in the following three grades: 
HFCS-55 is the primary grade of HFCS used in soft drink production.  HFCS-42, while used in soft drink and juice production, is also u sed in the production of bakery products, canned 
goods, dairy products and other f oods.  HFCS-90 is typically blended with HFCS-42 to make 
HFCS-55, but it is also used as a sweetener in  juices, candies, bakeries, and food processing.
10  
According to the FAO, HFCS is part of the products known as isoglucose, a type of starch syrups where glucose has been isomerised to  fructose by using one or more isomerising 
enzymes.  Other syrups of this group are HFSS (high-fructose starch syrup) and HFGS (high-
fructose glucose syrup).  HFCS is manufactured from corn starch, and is widely used in the 
production of food and soft drinks.
11 
III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS  
3.1 The United States requests the Panel to find that the challenged tax measures are:  
– inconsistent with GATT Article III:2, first sentence, as a tax applied on imported soft 
drinks and syrups "in excess of those a pplied to like domestic products" (soft drink 
tax and distribution tax);  
 
                                                      
5 United States' first written submission, para. 31 and exhibit US-18. 
6 United States' first written submission, para. 22. 
7United Nations Economic Commission for Europe, at 
http://www.unece. org/stats/econ/iwg.agri/handbo ok.sugar.html (site consulte d on 14 February 2005). 
8 United States' first written submission, para. 22. 
9United Nations Economic Commission for Europe, at 
http://www.unece. org/stats/econ/iwg.agri/handbo ok.sugar.html (site consulte d on 14 February 2005). 
10 United States' first written submission, paras. 9-12. 
11United Nations Economic Commission for Europe, at 
http://www.unece. org/stats/econ/iwg.agri/handbo ok.sugar.html (site consulte d on 14 February 2005). WT/DS308/R 
Page 4  
 
  – inconsistent with GATT Article III:2, second sentence, as a tax applied on imported 
soft drinks and syrups which are "not simila rly taxed" to the "directly competitive or 
substitutable" Mexican products (sof t drink tax and distribution tax);  
 
– inconsistent with GATT Article III:2, first sentence, as a tax applied on imported beet 
sugar "in excess of those applied to like  domestic products" (soft drink tax and 
distribution tax); 
  – inconsistent with GATT Article III:2, second sentence, as a tax applied on imported 
HFCS which is "not similarly taxed" to the "directly competitive or substitutable" 
Mexican cane sugar (soft drink tax and distribution tax); 
 
– inconsistent with GATT Article III:4 as a la w that affects the internal use of imported 
HFCS and accords HFCS "treatment ... l ess favourable than that accorded to like 
products of national origin" by: 
 
(a) taxing soft drinks and syrups that use HFCS as a sweetener (soft drink tax), 
 (b) taxing the agency, representation, brok erage, consignment and distribution of 
soft drinks and syrups sweetened with HFCS (distribution tax), and 
 
(c)  subjecting soft drinks and syru ps sweetened with HFCS to various 
bookkeeping and reporting requireme nts (bookkeeping requirements) 
 
– inconsistent with GATT Article III:4 as a la w that affects the internal use of imported 
beet sugar and accords beet sugar "treatment  ... less favourable than that accorded to 
like products of national origin" by: 
 
(a) taxing soft drinks and syrups that u se beet sugar as a sweetener (soft drink 
tax), 
 
(b) taxing the agency, representation, brok erage, consignment and distribution of 
soft drinks and syrups sweetened with  beet sugar (distribution tax), and 
 
(c) subjecting soft drinks and syrups sweetened with beet sugar to various 
bookkeeping and reporting requireme nts (bookkeeping requirements). 
 
3.2 Mexico requests the Panel to: 
 – decline to exercise its jurisdiction and r ecommend to the parties that they submit their 
respective grievances to an Arbitral Pane l, under Chapter Twenty of the NAFTA, 
which can address both Mexico's concern w ith respect to market access for Mexican 
cane sugar in the United States under the NA FTA and the United States' concern with 
respect to Mexico's tax measures. 
 
– In the event that the Panel does decide to  exercise its jurisdiction, Mexico requests it: 
 
(a) to pay particular attention to the circ umstances that gave rise to the measures 
at issue in this case to accord partic ular weight to Mexico's status as a 
developing country, especially in the context of the broader dispute 
concerning trade in sweeteners between Mexico and the United States, and to 
find that the Mexican measures are justified under Article XX of the GATT 1994.  WT/DS308/R 
 Page 5 
 
 
  
(b) to employ particular care in te rms of how it formulates its findings and 
recommendations.  In particular, Mexico requests the Panel to record that whatever the parties' legal rights ma y be under other applicable rules of 
international law, its findings apply solely to the parties' respective rights and 
obligations under the WTO agreements a nd cannot be taken to pre-judge such 
other legal rights; 
 
(c) to recommend that the parties take  steps to resolve the sweeteners trade 
dispute within the NAFTA framework; and 
 
(d) to make certain determinations of facts.
12 
 
IV. ARGUMENTS OF THE PARTIES 
4.1 The arguments presented by the parties in thei r written submissions and oral statements are 
reflected below.13  The parties' answers to questions and comments on each other's responses are 
reproduced in Annex C. 
A. REQUEST FOR PRELIMINARY RULING  
4.2 In its first written submission, Mexico made a request that the Panel decline to exercise its 
jurisdiction in this case.  Mexico asked that the Pa nel make this decision through a preliminary ruling.  
On 18 January 2005, the Chairman of the Panel wrot e to the representatives of the parties giving the 
Panel's response to this request (see Annex B). 
B. FIRST WRITTEN SUBMISSION OF THE UNITED STATES  
1. Introduction 
4.3 Since 1 January 2002, Mexico has imposed discriminatory tax measures on soft drinks and 
syrups that favour its domestic cane sugar industry, in violation of its obligations under Articles III:2 
and III:4 of the GATT 1994.  Specifically, in December 2001, the Mexican Congress approved an 
amendment of the IEPS adding a 20 per cent tax on soft drinks and syrups that use HFCS or any sweetener other than cane sugar ("HFCS soft dr ink tax"), as well as a 20 per cent tax on the 
representation, brokerage, agency, consignment and distribution of such products ("distribution tax").  
4.4 The HFCS soft drink and distribution tax is embodied in the following measures, which are 
the measures at issue in this dispute: (1) the I EPS, as amended effective 1 January 2002, and its 
subsequent amendments published on 30 December  2002, and 31 December 2003;  and (2) related or 
implementing measures, contained in the Reglamento de la Ley del Impuesto Especial sobre 
Producción y Servicios , the Resolución Miscelánea Fiscal para 2003, and the Resolución Miscelánea 
Fiscal para 2004.  
2. Legal argument 
4.5 For purposes of sweetening soft drinks and sy rups, cane sugar is directly competitive and 
substitutable with HFCS.  In Mexico, cane sugar is  the overwhelmingly dominant sweetener, with the 
                                                     
 
12 Written version of Mexico's oral statement during second substantive meeting of the Panel with the 
parties, para. 36. 
13 The summaries of the parties' arguments are based on the execu tive summaries submitted by the 
parties to the Panel. WT/DS308/R 
Page 6  
 
 vast majority of soft drinks and syrups produced  in Mexico being sweetened with cane sugar.  
Conversely, in the United States the sweetener of choice for soft drink and syrup production is HFCS.  Further, cane sugar comprises over 95 per cent of  Mexican sweetener production; whereas HFCS 
before the discriminatory tax comprised nearly 100 per cent of Mexican sweetener imports from the 
United States.  Because the tax exempts cane sugar and soft dinks and syrups sweetened with cane 
sugar, it clearly favours domestic cane sugar production over imports. 
(a) The IEPS is an internal tax 
4.6 The Ad Note to GATT Article III clarifies that  an internal tax that applies to imported 
products at the time of importation is, nonetheless , an internal tax within the meaning of GATT 
Article III.  The HFCS soft drink tax applies to imported soft drinks and syrups at the time of 
importation and like domestic products  upon their internal transfer.  The HFCS soft drink tax also 
applies to subsequent transfers of imported soft drinks and syrups in Mexico. The distribution tax 
taxes the agency, representation, brokerage, consignm ent and distribution of so ft drinks and syrups 
sweetened with HFCS in Mexico.  The HFCS soft drink tax and distribution tax are, thus, internal 
taxes within the meaning of GATT Article III. 
(b) The HFCS soft drink tax and distribution tax ar e inconsistent with GATT Article III:2, first 
sentence 
4.7 A determination of an internal tax's inconsiste ncy with GATT Article III:2, first sentence, is a 
two step process:  First, the imported and domestic products at issue must be "like".  Second, the 
internal tax must be applied to  imported products "in excess of" those applied to the like domestic 
products. 
(i) Soft drinks and syrups sweetened with HFCS and soft drinks and syrups sweetened with cane 
sugar are like products 
4.8 "Like" products need not be identical in all respects.  For example, vodka and shochu were 
found in a previous dispute to be like products within the meaning of GATT Article III:2, first 
sentence.  Soft drinks and syrups sweetened with HFCS and soft drinks and syrups sweetened with 
cane sugar are like products because they have virtua lly identical physical properties, end-uses and 
tariff classifications and are equally preferred by consumers. 
Physical characteristics
 
4.9 Soft drinks and syrups sweetened with HFCS a nd soft drinks and syrups sweetened with cane 
sugar are physically identical in virtually all respect s.  First, soft drinks and syrups sweetened with 
HFCS and soft drinks and syrups sweetened with cane sugar are identical in physical appearance. 
Second, soft drinks and syrups sweetened with HFCS  and soft drinks and syrups sweetened with cane 
sugar are virtually indistinguishable by the human body as both contain the same number of calories and are digested and absorbed by the human body in the same manner.  
4.10 Third, soft drinks and syrups sweetened with  HFCS and soft drinks and syrups sweetened 
with cane sugar have nearly the same chemical composition.  Cane sugar and HFCS are similarly 
mixtures of fructose and glucose.  Thus, the only difference between an HFCS-sweetened and a cane 
sugar-sweetened soft drink or syrup is the exact ratio of the fructose-glucose mixture. 
4.11 Fourth, per the Mexican regulation, a soft dr ink or syrup sweetened with HFCS and one 
sweetened with cane sugar bear the same ingredient on the label:  "azúcares" ("sugars").   "Azúcares", 
per Mexico's regulation, is defined as all mono- or  disaccharide sugars.  This definition captures both 
the monosaccharide sugar, HFCS, and the disaccharide sugar, cane sugar.  WT/DS308/R 
 Page 7 
 
 
 End-uses and channels of distribution  
4.12 Soft drinks and syrups sweetened with HFCS a nd soft drinks and syrups sweetened with cane 
sugar share identical end-uses and channels of distri bution.  A soft drink or syrup's sweetener does not 
affect its end-use.  There is no evidence that, when Mexican bottlers, su ch as Coca-Cola Femsa, 
switched to a blend of HFCS and sugar (or when United States bottlers switche d in the 1980s), these 
end-uses in any way changed.  
4.13 For similar reasons, whether a soft drink or sy rup is sweetened with HFCS or sugar does not 
affect its channels of distribution.  Major bottlers do not mentioned a soft drink or syrup's sweetener 
as in any way affecting its channels of distribution.  There is no evidence that channels of distribution 
for soft drinks or syrups in Mexico changed in the period from the late 1990s through 2001 when 
bottlers such as Coca-Cola Femsa had switched to  a blend of HFCS and sugar for soft drink 
production, nor that they changed again when, becau se of the HFCS soft drink tax and distribution 
tax, bottlers switched back to 100 per cent cane sugar. 
Consumer preferences  
4.14 Prior to switching to use of HFCS, United States soft drink bottlers undertook extensive 
consumer surveys to determine the consumer acce ptability of soft drinks sweetened with HFCS.  
These surveys revealed that overall HFCS-sweetened and sugar-sweetened soft drinks were equally 
acceptable to consumers.  Other surveys conducte d were based on head-to-head comparisons of 
HFCS- and sugar-sweetened soft drinks and showed  no consistent pattern of preference for sugar-
sweetened soft drinks versus HFCS-sweetened soft drinks.  Today, Coca-Cola reports "there is no 
noticeable taste difference." 
4.15 In the course of its anti-dumpi ng determination on HFCS from the United States, the Mexican 
Government noted that a panel of 30 tasters did not detect any significant difference in sweetness or 
any pattern of preference.  That same determina tion concluded overall: "These possible differences in 
products manufactured with the two sweeteners in question may prove that these sweeteners are not 
identical, but this does not mean that they do not ha ve an extremely similar taste."  As a result of 
positive consumer testing, United States manufacturer s of soft drinks and sy rups switched from sugar 
to 100 per cent HFCS by the mid-1980s.  Similarly, in the late 1990s in Mexico,  Mexican soft drink producers began increasingly to subs titute HFCS for cane sugar.  
4.16 In addition, with the exception of a handful of niche products, soft drinks are simply not 
marketed on the basis of whether they contain sugar or HFCS as a sweetener. 
Tariff classification
 
4.17 The tariff classification system in Mexico does not  separately break out soft drinks and syrups 
based on whether they are sweetened with sugar (whether cane or beet) or HFCS. 
4.18 In sum, HFCS-sweetened and cane sugar-sweeten ed soft drinks are like products within the 
meaning of GATT Article III:2, first sentence. 
(ii) Soft drinks and syrups sweetened with HFCS a re taxed in excess of soft drinks and syrups 
sweetened with cane sugar 
HFCS soft drink tax  
4.19 The HFCS soft drink tax applies a 20 per cent tax on soft drinks and syrups.  Only internal 
transfers of soft drinks and syrups sweetened excl usively with cane sugar are exempt from the IEPS.  WT/DS308/R 
Page 8  
 
 Thus, with respect to imports, the IEPS taxes (1) a ll soft drinks and syrups  upon their importation – 
regardless of the sweetener used – an d then (2) taxes their subsequent in ternal transfer if they use any 
sweetener other than cane sugar. 
4.20 Virtually all regular soft drinks and syrups produced in the United States are sweetened with 
HFCS, while all regular soft drinks and syrups pr oduced in Mexico are sweetened with cane sugar. 
Therefore, by exempting soft drinks and sy rups sweetened with only cane sugar, the IEPS 
successfully exempts all regular soft drinks and sy rups produced in Mexico from payment of the 20 
per cent tax.  A 20 per cent tax that applies to imported soft drinks and syrups but not to soft drinks and syrups produced domestically is a tax "in exce ss" of that applied  to like domestic products.  
Therefore, as applied at the time of importation and up on internal transfers, the HFCS soft drink tax is  
inconsistent with GATT Article III:2, first sentence. 
Distribution tax
 
4.21 The IEPS also applies a 20 per cent tax on the representation, brokerage, agency, consignment 
and distribution of soft drinks and syrups sweetened with HFCS. Soft drinks and syrups sweetened with cane sugar are exempt from the distribution tax.   A tax applied on the representation, brokerage, 
agency, consignment and distribution of a good is, in effect, a tax on the good itself.  Therefore, by 
taxing the representation, brokerage, agency, consignm ent and distribution of soft drinks and syrups 
sweetened with HFCS at 20 per cent while complete ly exempting soft drinks and syrups sweetened 
only with cane sugar, the IEPS subjects HFCS-sweeten ed soft drinks and syrups to taxes "in excess 
of" of those applied on like domestic  products – soft drinks and syr ups made with cane sugar.  
Accordingly, the distribution tax is also incons istent with GATT Article III:2, first sentence. 
(c) The IEPS is inconsistent with Artic le III:2, second sentence, of GATT 1994 
4.22 A measure is inconsistent with GATT Article  III:2, second sentence, if (1) the imported 
product and domestic product are "directly competi tive or substitutable products;" (2) the directly 
competitive or substitutable imported and domestic products are "not similarly taxed;" and (3) the 
dissimilar taxation is applied "so as to afford pr otection to domestic production."  The IEPS as a tax 
on soft drinks and syrups made with HFCS, as well as a tax on the use of HFCS itself, meets each of 
these elements such that the IEPS is inconsistent with Mexico's obligations  under GATT Article III:2, 
second sentence. 
(i) The HFCS soft drink tax as applied to HFCS is  inconsistent with GATT Article III:2, second 
sentence 
4.23 By imposing a 20 per cent tax on soft drinks and syrups sweetened with HFCS, Mexico has, 
in effect, imposed a prohibitive tax on the use of HFCS.  
HFCS and cane sugar are directly competitive or substitutable products
 
4.24 HFCS and cane sugar are directly compe titive or substitutable products.  Whether two 
products are "directly competitive or substitutable" must be determined on a case-by-case basis and in 
light of all the relevant facts in the case.  An assessment of whether there is a direct competitive 
relationship between two pr oducts or groups of produc ts requires evidence that consumers consider or 
could consider the two products or groups of products as alternative ways of satisfying a particular 
need or taste.  This requires evidence of the di rect competitive relationship between the domestic and 
imported products, including comparisons of their physical characteristics, end-uses, channels of 
distribution and prices. Moreover, the category of directly competitive or substitutable products is 
broader than the category of "like products":  ev en imperfectly substitutable products can fall under 
the second sentence of Article III:2. Products do not have to be substitutable for all purposes at all  WT/DS308/R 
 Page 9 
 
 
 times to be considered competitive.  It is sufficient that there is a pattern that they may be substituted 
for some purposes at some times by some consumers. 
Physical characteristics 
4.25 HFCS and cane sugar for use in soft drinks a nd syrups have substantially the same physical 
characteristics.  This analysis should focus on the defining physical characteristics of HFCS and cane 
sugar for the purpose of competition in the marketpla ce.  Because the HFCS soft drink tax applies on 
the use of HFCS in soft drinks and syrups, the re levant "marketplace" is the soft drink and syrup 
industry.  
4.26 HFCS is a liquid sweetener that has substantia lly the same chemical characteristics as cane 
sugar.  Both HFCS and cane sugar are composed of  a combination of glucose and fructose molecules 
and, when in a soft drink or syrup, both exis t as monosaccharides within three to four weeks of 
bottling.   HFCS-55 contains just five per cent more  fructose than cane sugar; HFCS-42 contains just 
eight per cent less. The similar chemical composition of HFCS and cane sugar is not accidental.  In fact, when HFCS was developed, it was calibrated to be just as sweet as sugar as a sweetener for soft 
drinks.  This was done by developing a fructose-gluc ose ratio that closely mimicked that of cane 
sugar.   
4.27 Because the chemical constituents of sugar and HF CS are so similar, the taste perceptions in 
soft drink and syrup formulations are extremely simila r.  This is especially true after the sugar in a 
soft drink has inverted, or broken down to a monosaccharide solution of fructose and glucose 
molecules just as the molecules ex ist in HFCS.   Testing conducted by the soft drink and HFCS 
industries found that HFCS-sweetened soft drinks and sugar-sweetened soft drinks were comparable 
and of equal acceptability to the consumer.  HFCS and cane sugar are also physically similar when it 
comes to smell and colour.  Both HFCS and cane sugar are odourless and, as liquids, both are 
colourless. 
4.28 HFCS's form as a liquid sweetener does not distinguish it from cane sugar as a sweetener for 
soft drinks and syrups.  First, some producers of soft drinks and syrups actually use cane sugar in its 
liquid form. Second, part of the bottling process when using cane sugar as a sweetener is mixing the 
cane sugar with water to produce a sugar syrup, whic h is then mixed with other ingredients to produce 
a soft drink. 
4.29 In the context of the SECOFI anti-dumping investigation of HFCS in 1997-98, the Mexican 
Government has also determined that cane suga r and HFCS share the same essential physical 
characteristics and concluded that HFCS-55, HFCS -42 and sugar are "like products" for the purposes 
of Mexico's anti-dumping law and Article 2.6 of the Anti-Dumping Agreement.  
4.30 When this anti-dumping determination was chal lenged in binational pa nel proceedings under 
NAFTA Chapter 19, the binational panel agreed with Mexico that sugar and HFCS are "like 
products." 
End uses and consumer preferences 
4.31 Overlap in end-use is important in determini ng direct competitiveness or  substitutability.  The 
existence of mixtures, and the use of two products in varying mixtures, also testifies to their overlap in 
uses and to their commercial interchangeability.  Commonality of end-uses in foreign markets and 
consumer tastes are also relevant.  For HFCS itsel f or sugar, the relevant consumers are sweetener 
users of HFCS in the bottling industry and elsew here.  The end-uses of HFCS and cane sugar, and 
consumer tastes for these products, demonstrat e their competitiveness or substitutability. WT/DS308/R 
Page 10  
 
 4.32 The evidence submitted by the United States shows that HFCS was developed with the end-
use of soft drink bottling as its major objective. Me xican soft drink producers have used varying 
mixtures of HFCS and cane sugar, and have converted from cane sugar to mixtures of HFCS and then back again.  This free variation between sweetener s testifies to the commercial interchangeability of 
HFCS and cane sugar in Mexican soft drink produc tion.  When a soft drink bottler uses a blend of 
HFCS and sugar, the bottler is using both sweetener s for the same purpose, in the same plant, for the 
same brand of the same soft drink.  
4.33  In addition, because the HFCS soft drink tax do es not apply to fruit or vegetable juices, major 
juice bottlers can, and do, use as much HFCS in thei r sweetened juices as they wish –  up to 100 per 
cent of sweetener in some cases.  Mexican bottlers' reaction to the HFCS soft drink tax was to switch 
back to 100 per cent sugar.  The fo rmer use of HFCS and sugar in mixtures, and the use of up to 100 
per cent HFCS by bottlers who are not subject to a pr ohibitive tax, testify to the distortion of market 
choices created by the HFCS tax.  In the United States and Canada, soft drink and syrup producers have shifted almost entirely from sugar to HFCS over time.  
4.34 Switching between HFCS and suga r is not expensive or difficult.   Switching from HFCS to 
sugar is more difficult and costly, and Mexican bottle rs would not have done so if they had not been 
forced to by the 20 per cent tax.  In the early 19 80s in the United States when United States bottlers 
were using blends of HFCS and s ugar, varying the HFCS-sugar ratio in a given batch of soft drinks 
could be done with relative ease. 
4.35 Also, Mexican labelling regulations do not dis tinguish between "sugars" as a food or beverage 
ingredient.  Thus, a bottler can move between diffe rent mixtures of HFCS and sugar without changing 
its labelling. 
4.36 The Mexican Government has recognized the overlap in end-uses and consumer tastes 
between HFCS and cane sugar.  As noted above, in  the final anti-dumping determination of January 
1998, SECOFI found that HFCS and sugar "fulf il the same functions and are commercially 
interchangeable in the marketplace."  SECOFI not ed the ample proofs presented that consumers 
"perceive no difference at all" between sugar, inve rt sugar and HFCS.  The determination also notes 
that a panel of 30 tasters did not detect any si gnificant difference in sweetness or any pattern of 
preference for HFCS-55, refined sugar or invert suga r and that an examination of a range of food and 
beverage industries showed a practice that substitu tion of HFCS for sugar was not promoted as a 
change in brand or a  "new flavour." 
4.37 During the review of this determination by the binational panel under Chapter 19, Mexico 
argued that "technical studies and testimonies of repr esentatives of the [soft drink] industry show that 
HFCS and sugar are both used interchangeably in the industry without affecting the quality of soft 
drink products," and that "HFCS and sugar while not perfect substitutes possess characteristics and 
composition sufficiently similar that they serve a grea t number of similar functions.  This allows them 
to be commercially interchangeable in such a great  variety of sub-sectors of the beverages and food 
sectors."  The Chapter 19 binational panel conc luded that sugar and HFCS are commercially 
interchangeable. 
4.38 Sugar and HFCS are therefore directly competitive or substitutable and in direct competition 
in the marketplace.  
Channels of distribution 
4.39 The channels of distribution for HFCS and cane sugar, and for soft drinks sweetened with 
them, provide additional evidence that these products are directly competitive or substitutable.  HFCS  WT/DS308/R 
 Page 11 
 
 
 and sugar are sold through similar channels from producers to industrial bottlers, and in some cases 
the same company sells both HFCS and sugar to similar customers. 
4.40 HFCS of United States origin has been sold to  Mexican customers through two channels:  on 
an f.o.b. basis directly from the United States exporter and terminals bu ilt by HFCS exporters in 
Mexico. The latter received HFCS exports from plants in the United States and then sold the HFCS to 
customers in Mexico.  Mexican bottlers buy Mexican  cane sugar directly from the sugar mill or from 
a distributor.  Any difference in distribution channels is , thus, attributable to the fact that HFCS is the 
imported sweetener and cane  sugar is the domestic sweetener.  Bo th sweeteners are sold directly from 
the sweetener producer to the end-user, which with respect to this dispute are soft drink and syrup 
bottlers.   
4.41 In the anti-dumping investigation on HFCS from the United States, SECOFI examined 
distribution channels for HFCS and sugar and found th at they were the same, and were targeted at the 
same customers. 
Tariff classification 
4.42 The classification of these products in the Mexican tariff schedule also supports the 
conclusion that these are directly competitive or  substitutable products.  Although cane sugar is 
generally classified under heading 1701 and HFCS  under heading 1702, some cane sugar products 
(i.e., liquid cane sugar and invert cane sugar) are classified under heading 1702. 
4.43 With respect to soft drinks and syrups sweet ened with either HFCS or cane sugar, as 
recounted above, the tariff classification system in Mexico does not separately break out soft drinks 
and syrups based on whether they are sweetened with cane sugar or HFCS.  
Price relationships and competition in the marketplace 
4.44 The price relationships between HFCS and cane su gar in soft drink use also demonstrate that 
they are directly competitive or substitutable pr oducts.  The connection between the price, or 
availability, of HFCS and the price of sugar has b een amply demonstrated by the real-world economic 
experiment of the HFCS soft drink tax.  In the three days following the enactment of the tax, for 
example, 30 Mexican bottlers cancelled all orders for HFCS.  By mid-January 2002, the HFCS soft 
drink tax had resulted in a 8 per cent increase in Mexican sugar prices. 
4.45 Because of the HFCS tax, and the collapse of demand for HFCS from bottlers, importers 
shuttered their terminals or othe rwise virtually ceased imports of HFCS for soft drink and syrup 
production, and domestic HFCS producers partially or totally idled their production.  Yet demand for 
sweeteners has remained constant or growing with annual growth in populati on and GDP.   As sugar 
replaced HFCS in soft drink and syrup production, the additional demand for sugar artificially created 
a sugar shortage.  The Secretariat of Economy explai ned its decision to provide an extraordinary cupo 
(market access quota) for sugar imports during the la tter part of 2003: "This plan results from various 
complaints about shortage problems in sugar, presented to the Secretariat of Economy by producers who use sugar in their production processes.  These concerns are fundamentally a consequence of the 
entry into force of the Impuesto Especial sobre Producción y Servicios  (IEPS) for soft drinks made 
with fructose, which has generated a substitution of sugar for fructose ..." 
4.46 The Mexican Government Comisión Federal de Competencia  (CFC, or Federal Competition 
Commission) has also rec ognized that sugar and HFCS are directly competitive with each other in the 
marketplace, in two separate decisions regarding competition in the sugar industry.  These decisions 
were based on an examination of the detailed fact s of competition in the Mexican sweeteners market 
and found that HFCS is a close substitute for refi ned sugar in carbonated dr inks. As the panel in 
Chile WT/DS308/R 
Page 12  
 
 – Alcoholic Beverages noted:   the question of competition fro m an anti-trust perspective generally 
utilizes narrower market definitions than used wh en analysing markets pursuant to Article III:2, 
second sentence and it seems logical that competitive conditions sufficient for defining an appropriate 
market with respect to anti-trust analysis would a fo rtiori suffice for an Article III analysis.  The Panel 
in this dispute should read the findings of the CFC to confirm that cane sugar and HFCS are directly 
competitive or substitutable products in the Mexican market. 
Summary on direct competition and substitutability 
4.47 To set the HFCS-sugar comparison in perspective, the Panel might consider the WTO 
disputes regarding discrimination in taxation of dis tilled spirits.  Each of these disputes concerned a 
situation of long-standing tax discrimination, in whic h tax barriers largely forecl osed the market to the 
imported product.  The panel and the parties in each of these cases had to place a particular focus on 
potential competition and latent demand, since act ual discrimination was so severe and so long-
standing. 
4.48 In the present case, there is not just poten tial competition between imported HFCS and 
domestic cane sugar:  the Panel has available to it data on actual competition between these products 
including product switching before and just after th e HFCS soft drink tax was imposed.  HFCS itself 
was developed to mimic and improve on cane sugar in soft drink bottling operations, and its success 
in the marketplace of the bottling industry testifies to how close a substitute it is for sugar.  Indeed, if 
HFCS were not quite so successful at competing with cane sugar, the Mexican Government might not have acted to protect the Mexican sugar industry by enacting the HFCS soft drink tax to expel imported HFCS from the soft drink and syrup market in Mexico.  
4.49 For all these reasons, the Panel should find that for purposes of sweetening soft drinks, 
imported HFCS and Mexican cane sugar are directly  competitive or substitutable products, and 
compete directly in the soft drink and syrups sweeteners marketplace in Mexico.  
HFCS and cane sugar are not similarly taxed
 
4.50 There can be no question that the HFCS so ft drink tax taxes HFCS and cane sugar 
dissimilarly.  When contained in a soft drink or syrup, HFCS results in a 20 per cent tax on the value 
of the finished soft drink or syrup.  Use of excl usively cane sugar in that same soft drink or syrup 
results in no tax at all.   As applied to HFCS, how ever, the impact of the tax differential actually far 
exceeds a 20 percentage point difference.  This is be cause the HFCS soft drink tax is calculated on the 
value of the finished soft drink or syrup such that th e tax results in a tax that is four times the value of 
the HFCS – or in other words, a 400 per cent tax on HFCS.  With a tax liability of 400 percent, the 
HFCS producer cannot even provide HFCS to its cust omer for free:  the producer would have to pay 
the customer to take it.  The HFCS soft drink tax is essentially a prohibitive tax on the use of HFCS in 
soft drinks and syrups.  Needless to say, a prohib itive tax applied to the imported product that is not 
applied to the directly competitive or substitutabl e domestic product is a dissimilar tax within the 
meaning of GATT Article III:2, second sentence. 
HFCS soft drink tax is applied so as to afford protection to domestic production  
4.51 The protective application of a measure is to be discerned from the structure of the measure 
itself, including the very magnitude of the dissimila r taxation involved.   A measure's purpose, to the 
extent it is "objectively manifested in the design, architecture and structure of the measure" may also 
be "intensely pertinent to the task of evaluating whet her or not that measure is applied so as to afford 
protection to domestic production."   WT/DS308/R 
 Page 13 
 
 
 4.52 Mexico's tax on the use of HFCS is applied "so as to afford protection" to Mexican cane sugar 
production. The HFCS soft drink tax is structured such that all soft drinks and syrups are taxed 20 percent, except those sweetened ex clusively with cane sugar.  Cane sugar is a domestically-produced 
sweetener in Mexico.  Since Mexico does not impor t sugar – or does so in only very small amounts – 
this is a benefit bestowed nearly exclusively on  domestic producers.  Domestic producers have, thus, 
benefited from being placed in an un-taxed cate gory, while their greatest commercial rival, the 
imports of HFCS, remain subjected to taxation.   
4.53 Moreover, as indicated above, HFCS remains not  only subject to taxation but taxation at a 
prohibitive rate.  As stated, a 20 per cent tax on the va lue of the finished soft drink or syrup results in 
a 400 per cent tax on the use of HFCS itself.   The en ormity of this dissimilar taxation has effectively 
excluded imported HFCS from the Mexican sweeteners market.  Dissimilar taxation of this magnitude 
and nature objectively manifests the intention of the tax to protect Mexican cane sugar production.  
4.54 Further, the structure of the HFCS soft drink ta x is such that the low-taxed product is almost 
exclusively domestically-produced, while the high-taxed product, prior to imposition of the discriminatory tax, comprised virtually all directly  competitive or substitutable imports.  Indeed, in 
2001 HFCS accounted for 99.7 per cent of Mexican nu tritive sweetener imports.  By contrast, in 2001 
cane sugar comprised somewhere between 90 and 95 per cent of domestically produced sweeteners in 
Mexico.  Thus, at the time of its imposition, the HF CS soft drink tax applied to nearly 100 per cent of 
sweetener imports but less than ten per cent of Mexican production.  The Appellate Body addressed a 
similar situation in Chile – Alcoholic Beverages . 
4.55 The protectionist structure of the IEPS is conf irmed by a remarkable series of judicial and 
political pronouncements that the purpose of the tax is to "protect the sugar industry."  For example,  
the highest interpretative authority in Mexico, the Supreme Court, has definitively and conclusively 
characterized Mexico's tax scheme as designed to protect Mexican domestic production of cane sugar. 
4.56 In sum, the HFCS soft drink tax, as a tax on HFCS but not the directly competitive or 
substitutable domestic product cane sugar, is applie d in a manner so as to afford protection to 
domestic production, and, therefore, is incons istent with Mexico's obligations under GATT 
Article III:2, second sentence. 
(ii) The HFCS soft drink tax and distribution tax as applied to soft drinks and syrups is 
inconsistent with GATT Ar ticle III:2, second sentence 
Soft drinks and syrups sweetened with cane sugar are directly competitive or substitutable 
with soft drinks and syrups sweetened with HFCS  
4.57 The category of "like" products is a subset of those products which are directly competitive or 
substitutable.  Therefore, as soft drinks and syrups  sweetened with HFCS and soft drinks and syrups 
sweetened with cane sugar are like products they ar e necessarily directly competitive or substitutable 
products.  
4.58 Moreover, soft drinks and syrups sweetened with  HFCS and soft drinks and syrups sweetened 
with cane sugar are directly competitive or substituta ble products for many of the same reasons they 
are "like". First, with respect to physical appearan ce, end-uses and channels of distribution, consumer 
preferences and tariff classification, soft drinks a nd syrups sweetened with HFCS and soft drinks and 
syrups sweetened with cane sugar are virtually the same.  Second, HFCS-sweetened and sugar-
sweetened soft drinks and syrups compete in the sa me market and for the same customers.  For these 
reasons, as well as others examined in more detail  above, soft drinks and syrups sweetened with 
HFCS and soft drinks sweetened with cane sugar are directly competitive or substitutable products 
within the meaning of GATT Article III:2, second sentence. WT/DS308/R 
Page 14  
 
 Soft drinks and syrups sweetened with HFCS a nd soft drinks and syrups sweetened with cane 
sugar are not similarly taxed  
4.59 As stated above, the HFCS soft drink tax impos es a tax at a rate of 20 per cent on (1) all 
importations of soft drinks and syrups from the Unite d States and (2) subsequent internal transfers of 
such soft drinks and syrups if they are sweetened with HFCS.   The IEPS exempts from the latter soft 
drinks and syrups sweetened with cane sugar.  As also stated, all regular soft drinks and syrups 
produced in Mexico are sweetened with cane sugar,  such that the exemption successfully excludes all 
regular soft drinks and syrups produced in Mexico from payment of the tax. Consequently, the HFCS 
soft drink tax results in a 20 per cent tax on importe d soft drinks and syrups, and their subsequent 
internal transfer if sweetened with HFCS, that is  not similarly applied to directly competitive or 
substitutable products.  Imposing a 20-percentage point differential between the tax on the imported 
product and the tax on the directly competitive or substitutable product clearly means that the 
products are not "similarly taxed".  Accordingly, the HFCS soft drink tax as applied to soft drinks and 
syrups – both at the time of importation and on subsequent transfers – results in the type of dissimilar taxation captured under GATT Article III:2, second sentence. 
4.60 In addition, the distribution tax also results in  dissimilar taxation of imported soft drinks and 
syrups.  Like the tax on internal transfers, the I EPS exemption for soft drinks and syrups sweetened 
with cane sugar, also successfully excludes all regul ar soft drinks and syrups produced in Mexico 
from payment of the distribution tax.  Because virtually  all regular soft drinks and syrups produced in 
the United States are sweetened with HFCS, imported soft drinks and syrups do not enjoy the same 
exemption.  As a consequence, the distribution tax taxes the re presentation, brokerage, agency, 
consignment and distribution of im ported soft drinks and syrups bu t not the representation, brokerage, 
agency, consignment and distribution of soft drinks and syrups produced in Mexico.  A tax on the representation, brokerage, agency, consignment and di stribution of a good, is in effect, a tax on the 
good itself.  Therefore, the distribution tax cons titutes a tax applied on imported soft drinks and 
syrups that is not similarly applied to directly  competitive or substitutable products produced in 
Mexico.  
The HFCS soft drink and distribution tax is a pplied so as to afford protection to domestic 
production  
4.61 As stated above, whether a measure is "applied so as to afford protection to domestic 
production" is "an issue of how the measure in ques tion is applied."  The IEPS – both its HFCS soft 
drink tax and its distribution tax –  is applied su ch that it affords protection to domestic production. 
Under the IEPS, soft drinks and syrups sweetened with HFCS are taxed at 20 per cent (whether on 
their importation, internal transfer or in connec tion with their representatio n, brokerage, agency, 
consignment or distribution), whereas soft drinks an d syrups sweetened with cane sugar are not.  As 
discussed above, soft drinks and syrups sweetened w ith HFCS and soft drinks and syrups sweetened 
with cane sugar are directly competitive or substitu table products.  Moreover, as also explained above, 
all regular soft drinks and syrups produced in Mexico are sweetened with cane sugar, whereas 
virtually all soft drinks and syrups produced in the United States are sweetened with HFCS.   Therefore, the structure of the IEPS, is to apply a 20 per cent tax on soft drinks and syrups imported 
from the United States and no tax on directly comp etitive or substitutable soft drinks and syrups 
produced in Mexico.  
4.62 The structure of the IEPS is precisely the ty pe of structure that has been found on prior 
occasions to constitute persuasive evidence that a measure is applied "so as to afford protection." 
Furthermore, if viewed on an order of magnitude basis the 20-percentage point difference in this 
dispute far exceeds the tax differential examined in  the other WTO alcoholic beverages disputes.   
Moreover, the IEPS applies not only on the importati on and internal transfer(s) of soft drinks and 
syrups themselves but also on their representation, brokerage, agency, consignment and distribution.   WT/DS308/R 
 Page 15 
 
 
 Thus, the tax differential is not just 20 per cent on the value of the soft drink or syrup but an 
additional 20 per cent on the value of any repr esentation, brokerage, agency, consignment or 
distribution used to effectuate that  soft drink or syrup's transfer. 
4.63 As a tax on imported soft drinks  and syrups that is not similarly applied to directly 
competitive or substitutable soft drinks and syrups  produced in Mexico, the IEPS (HFCS soft drink 
tax and distribution tax) is inc onsistent with Mexico's obligati ons under GATT Article III:2, second 
sentence. 
(d) The HFCS soft drink tax, distribution tax a nd reporting requirements applied on the use of 
HFCS are inconsistent with GATT Article III:4 
4.64 In examining a claim under GATT Article III:4,  the Appellate Body has identified three 
distinct elements required to establish a violation:   (1) the imported and dom estic products are "like 
products;" (2) the measure is a law, regulation, or requirement affecting the internal sale, offering for 
sale, purchase, transportation, distribution, or u se of the imported and domestic like products; and (3) 
the imported product is accorded less favourable treatment than the domestic like product.  The IEPS meets each of these criteria as a tax on the use of HF CS by (1) taxing the transfer of soft drinks and 
syrups made with HFCS at 20 per cent (HFCS soft drink tax); (2) ta xing the representation, 
brokerage, agency, consignment and distribution of  soft drinks and syrups made with HFCS 
(distribution tax); and (3) subjecting soft dri nks and syrups made with HFCS to numerous 
bookkeeping and reporting requirements (reporting re quirements).  These measures are not imposed 
on cane sugar or soft drinks and syrups made only with cane sugar. 
(i) HFCS and cane sugar are like products 
4.65 As the details provided above reveal, HFCS  and cane sugar compete head-to-head as 
sweeteners for soft drinks and syrups.  Indeed, as a sweetener in soft drinks and syrups, HFCS and 
cane sugar are near perfect substitutes.  This is de monstrated by the facts reviewed above and, in 
particular, by the fact that prior to imposition of the IEPS, soft drink and syrup producers were, in rapidly increasing amounts, actually substituting HFCS for cane sugar.  These facts overwhelmingly 
support a finding that HFCS and cane sugar are "dir ectly competitive or substitutable" products for 
purposes of sweetening soft drinks and syrups within  the meaning of GATT Article III:2.   They are 
also more than adequate to support a finding that HFCS and cane sugar are "like" products within the 
meaning of GATT Article III:4.   
4.66 First, the analysis provided with respect to the GATT Article III:2, second sentence claim 
thoroughly establishes that, prior to the discriminator y tax, HFCS competed directly with cane sugar 
as a sweetener for soft drinks and syrups in Me xico. Second, HFCS and cane sugar overlap in the 
ways deemed relevant to the like product inquiry:  (i) the physical properties of the products;  (ii) the extent to which the products are capable of serving th e same or similar end uses;  (iii) the extent to 
which consumers perceive and treat the products  as alternative means of performing particular 
functions in order to satisfy a particular want or demand;  and (iv) the international classification of 
the products for tariff purposes.  Each of these elem ents was addressed in relation to the claim under 
GATT Article III:2, second sentence, and support a determination that, for purposes of GATT Article III:4, HFCS and cane sugar are "like" pr oducts as sweeteners for soft drinks and syrups. 
(ii) IEPS is a law affecting the use of HFCS 
4.67 The term "affecting" in GATT Article III:4 is br oad in scope.  This broad scope, as articulated 
by several panels and affirmed by the Appellate Body, "cover[s] not only la ws and regulations which 
directly govern the conditions of sale or purchase but also any laws or regulations which might 
adversely modify the conditions of compe tition between domestic and imported products."  WT/DS308/R 
Page 16  
 
 4.68 The IEPS "affects" the use of HFCS by conditi oning access to an advantage on use of the 
domestic sweetener, cane sugar.  Specifically, under the IEPS, soft drink and syrup producers who use 
exclusively cane sugar to sweeten their products are wholly exempt from the HFCS soft drink tax, the 
distribution tax and the reporting requirements.  Soft drink and syrup producers who use HFCS to sweeten their products do not enjoy the same advantag e.  Instead, soft drink and syrup producers who 
use HFCS to sweeten thei r products must (1) pay a 20 per cent ta x on the transfer of their products 
(HFCS soft drink tax); (2) pay a 20 per cent tax on representation, brokerage, agency, consignment or 
distribution of their products; and (3) track and report commercially sensitiv e information, including 
their products' top 50 customers and suppliers, to the Mexican authorities (reporting requirements).  
The added burdens imposed on the use of HFCS not only "influence" producers' choice of sweeteners 
but, because of the prohibitive nature of the tax (four times the value of the sweetener itself), 
economically compel producers to use domestically-pr oduced cane sugar over HFCS.  It is difficult to 
imagine evidence more telling of this, than the f act after imposition of the IEPS every Mexican bottler 
using HFCS reverted to a 100 per cent use of cane sugar.  The IEPS is, thus, a law "affecting" the 
"internal ... use" of HFCS. 
(iii) IEPS accords less favour able treatment to HFCS 
4.69 The IEPS undoubtedly affords "less favourable tr eatment" to imports than "accorded like 
products of national origin."  In Mexico cane suga r is almost exclusively a domestically-produced 
sweetener.  The IEPS bestows a real and substantiv e advantage on the use of cane sugar that is not 
accorded to HFCS – a product which prior to appli cation of the IEPS to soft drinks and syrups 
accounted for nearly 100 per cent of United States sweetener imports.  While soft drinks and syrups 
using exclusively cane sugar as a sweetener are w holly exempt from the IEPS, those sweetened, even 
partially, with HFCS are subject by virtue of the IEPS to (1) a 20 per cent tax on their transfer (HFCS 
soft drink tax); (2) a 20 per cent tax on their representation, brokerage, agency, consignment and 
distribution (distribution tax); and (3) bookk eeping and reporting requirements concerning 
commercially sensitive information (reporting requirement s).   The first of these alone – as a tax four 
times the value of the input – is sufficient to work as  a prohibition on the use of HFCS.   In sum, the 
IEPS by virtue of its HFCS soft drink tax, distri bution tax and reporting requir ements is inconsistent 
with GATT Article III:4 as a law affecting the inte rnal use of HFCS and affording imported HFCS 
less favourable treatment than the like product of national origin. 
3. Conclusion 
4.70 For the reasons set out above, the United States r espectfully requests the Panel to find that the 
IEPS is:  
 – inconsistent with GATT Article III:2, firs t sentence, as a tax applied on imported soft 
drinks and syrups "in excess of those app lied to like domestic products" (HFCS soft 
drink tax); 
 
 – inconsistent with GATT Article III:2, firs t sentence, as a tax applied on the agency, 
representation, brokerage, consignment and distribution of soft drinks and syrups 
sweetened with HFCS "in excess of t hose applied to like domestic products" 
(distribution tax);  
  – inconsistent with GATT Article III:2, second sentence, as a tax applied on imported 
HFCS which is "directly competitive or substitutable" with Mexican cane sugar 
which is "not similarly taxed" (HFCS soft drink tax);   
  WT/DS308/R 
 Page 17 
 
 
  – inconsistent with GATT Article III:2, second sentence, as a tax applied on imported 
soft drinks and syrups which are directly  competitive or substitutable with domestic 
soft drinks and syrups which are "not similarly taxed" (HFCS soft drink tax)14;  
  – inconsistent with GATT Article III:2,  second sentence, as a tax applied on the 
agency, representation, brokerage, consignmen t and distribution of soft drinks and 
syrups sweetened with HFCS which are di rectly competitive or substitutable with 
domestic soft drinks and syrups which are "not  similarly taxed" (distribution tax); and  
  – inconsistent with GATT Article III:4 as a la w that affects the internal use of imported 
HFCS and accords HFCS "treatment ... l ess favourable than that accorded to like 
products of national origin" by: 
 
(a) taxing soft drinks and syrups that use HFCS as a sweetener (HFCS soft drink 
tax), 
 
(b) taxing the agency, representation, brok erage, consignment and distribution of 
soft drinks and syrups sweetened with HFCS (distribution tax), and 
 
(c) subjecting soft drinks and syrups  sweetened with HFCS to various 
bookkeeping and reporting require ments (reporting requirements).
15 
 
C. FIRST WRITTEN SUBMISSION OF MEXICO  
1. Introduction 
4.71 The United States' first submission presents an  incomplete and one-sided account of the 
factual context in which the Mexican fiscal measures at  issue in this proceeding arose.  Viewed in the 
light of all relevant facts, this is a dispute ar ising under a regional free trade agreement and it would 
be inappropriate for this Panel to hear it.  Mexico  maintains that the Panel should decline to exercise 
its jurisdiction to resolve the present dispute and should recommend that the parties resort to the 
NAFTA dispute settlement mechanism to resolve in an integral ma nner the broader sweeteners trade 
dispute.  Should the Panel elect to  proceed with the examination of th e merits of this dispute, it should 
pay particular attention to certain novel issues concerning the legal rela tionship between the WTO 
agreements and efforts to liberalize trade at the regional level. 
4.72 Mexico and the United States negotiated unde r the NAFTA a balanced sweetener trade 
regime that mainly includes sugar and HFCS, wh ich compete with each other in certain market 
segments in both countries.  The Mexican Congress introduced the tax in response to:  (i) the United 
States' continued refusal to address Mexico's repe atedly stated concern that the United States had 
breached its NAFTA market access commitments regard ing trade in sugar, negotiated as part of the 
NAFTA, while HFCS continued to enjoy prefer ential access to the Mexican market, severely 
                                                      
14 The IEPS is also inconsistent as a tax on HFCS  with Article III:2, fi rst sentence, of GATT.  
However, because the IEPS so clearly taxes a directly  competitive or substitutable imported product in a manner 
so as to afford protection to domestic production, the United States, in the interest of brevity, has chosen to 
focus its submission on the second sentence. 
15 The IEPS is also inconsistent with Article III:4 of GATT 1994 as a law that affects "the internal sale, 
offering for sale, purchase, transportation, [and] distribution" of im ported soft drinks and syrups and accords 
them "treatment ... less favourable than  that accorded to like products of na tional origin" by ta xing their agency, 
representation, brokerage, co nsignment and distribution (distribution ta x). However, because the IEPS also so 
plainly violates GATT Article III:2, the United States, in the interest of brevity, has focus this submission on 
analysis under GATT Article III:2 with respect to the di stribution tax as applied to  soft drinks and syrups. WT/DS308/R 
Page 18  
 
 affecting the sugar sector in Mexico; (ii) the Un ited States' continued refusal to submit to NAFTA 
dispute settlement to resolve the dispute; and (iii) the ineffectiveness of bilateral negotiations that the 
parties have conducted over several years. 
4.73 The United States' first submission has omitted al l reference to the complex history of the 
bilateral sweetener dispute under the NAFTA.  N onetheless, there does exist a genuine dispute 
between the States over the meaning and scope of  the NAFTA provisions governing the trade in 
sweeteners, as recognized by the United St ates Department of Agriculture (USDA). 
4.74 Mexico has duly submitted to the jurisdictio n of multiple international panels and 
international tribunals convened at  the behest of the United States  or its nationals.  Meanwhile, no 
forum is presently available in whic h Mexico's grievance can be heard . 
4.75 Accordingly, Mexico will request this Panel to decline to exercise its jurisdiction and 
recommend to the parties that, as a matter of urgenc y, they submit their respective grievances to a 
NAFTA Chapter Twenty Panel which can address the dispute as a whole. 
4.76 If the Panel refuses Mexico's request that it declin e to exercise its jurisdiction, in view of the 
fact that there are parallel international proceedings  in which substantial monetary damages are being 
claimed against it, Mexico will request the Panel to refrain from making certain findings that could 
jeopardize its ability to mount a proper defence in  such proceedings.  Th is is of fundamental 
importance. 
2. Facts 
(a) The importance of the Mexican sugar industry 
4.77 The sugar sector spans 15 of Mexico's 32 stat es and is a key component of economic and 
social development in many rural areas of the c ountry.  The Mexican sugar industry is smaller and 
more fragmented in comparison to in ternational standards and in partic ular to the United States' sugar 
and HFCS industries.  It is characterized by a relatively large number of small and medium-sized sugar mills.  However, it must be recognized that in addition to the fact that Mexico is a developing 
country facing a significant and profound structural lag in comparison to the United States, the 
existing Mexican sugar industry, in particular, is an emerging private industry rooted in an 
agricultural system that has a peculiar land tenure re gime that itself resulted from significant structural 
changes made after the Mexican Revolution.  Su ccessive governments' efforts to provide social 
benefits and rural employment to some of Mexico's  poorest citizens through this crop must also be 
recognized.  These characteristics of the sugarcane industry long pre-dated Mexico's accession to the 
GATT as well as its accession to NAFTA. 
(b) The NAFTA negotiations 
4.78 During the NAFTA negotiations (1991-92), the th ree Parties initially sought to negotiate a 
trilateral agriculture chapter.  The Uruguay Round of Multilateral Trade Negotiations was then under 
way and trade in agricultural products was being a ddressed there.  Ultimately, the Parties recognized 
that most agricultural issues would be addressed in the multilateral negotia tions. Accordingly, only 
certain general rules were established at a trila teral level and the specific commitments were 
established by means of bilateral negotiations. 
4.79 In Section A of Annex 703.2 of the NAFTA, the United States and Mexico agreed on the 
rules dealing with trade in sugar and sugar syrups.
16   They agreed to move towards a common 
                                                      
16 It does not include HFCS.  See Section C of Annex 703.2.  WT/DS308/R 
 Page 19 
 
 
 regional market by establishing a common external ta riff and removing all tariffs and other barriers to 
bilateral trade as between each other. 
4.80 A key issue during the transition period was the definition of "net production surplus", which 
was defined by Annex 703.2(26) to mean "the quantity by which a Party's domestic production of 
sugar exceeds its total consumption of  sugar during a marketing year…" 
4.81 The effect of this agreement was that Mexi co would have a guaranteed minimum duty-free 
access; above this minimum level it would be ab le to export its net production surpluses duty-free 
within certain limits, until free trade was reache d in 2008.  However, if Mexico achieved net 
production surplus status for two consecutive marketi ng years, it would be able to export the total 
amount of its net surplus to the United States . 
4.82 Although HFCS is a sugar substitute  in certain industrial applications, it was not addressed in 
Annex 703.2.  However, the parties were well awar e that sugar and HFCS were part of the same 
market, the sweeteners market. 
(i) The United States requests changes 
4.83 The United States' sugar industry believed that the Mexican sugar industry's ability to export 
its surpluses to the United States would put pressure  on the domestic price of sugar and thereby 
reduce its profitability.  Therefore, it commenced strenuous lobbying efforts in Washington, D.C. in 
opposition to the NAFTA. 
4.84 There was a recognition that the Mexican soft dr ink industry had used sugar exclusively, but 
that there was a potential for it to shift to lower-cos t HFCS and that a displacement of sugar by HFCS 
could increase Mexico's net production surplus.  Accordingly, the United States proposed the 
exchange of letters. 
4.85 The meeting resulted in two draft letters (in En glish and Spanish) that were initialled by the 
lead negotiators from both countries, but not signe d by Ministers who were the intended signatories.17  
The United States submitted both letters to its Congr ess as part of the NAFTA implementing package. 
4.86 Mexico advised the United States that the draft letters did not reflect the agreement reached. 
In particular, Mexico stated that the drafts in cluded a phrase providing that  paragraph 16 of Annex 
703.2 – the paragraph of the NAFTA that provides th at Mexico had the right to export all of its 
surpluses if it became a net surplus producer for two consecutive years – would not apply, and that 
had not been part of the agreement.18 
4.87 The United States responded that inclusion of th at phrase had been agreed and requested that 
the exchange of letters be formalized.  For that purpose, the United States attached a letter signed by 
its Minister that reflected its understanding of the agreement.19  Mexico replied with a letter signed by 
its Minister that cont ained its own understanding.20   In particular, it did not include the phrase that 
provided that paragraph 16 of A nnex 703.2 would not apply.  Thus, there was no meeting of the 
minds.  Mexico has maintained that the text of th e NAFTA as originally signed  by the leaders of the 
three countries prevails. 
                                                      
17 Exhibit MEX-11. 
18 Exhibit MEX-12. 
19 Exhibit MEX-13. 
20 Exhibit MEX-14. WT/DS308/R 
Page 20  
 
 (ii) Subsequent developments 
4.88 Mexico moved from being a net importer of sugar to being a surplus producer.
21   First, the 
privatization of the sugar mills led to new invest ment in the mills' physical plant and consequent 
improvements in productivity.22   Second, encouraged by new mill owners, the cane growers sought to 
increase their own productivity and also in creased the number of hectares cultivated.23   T h i r d ,  
growing imports of United States-originating HFCS  into Mexico began to undercut higher-priced 
Mexican sugar and to displace it in certain market segments, particularly the soft drinks segment.24   
Fourth, there was a general expectation in the Mexican industry that it would be able to export the full 
surpluses to the United States market.  This did not  occur because the United States applied its own 
understanding of the sweetener agre ement, based on the English vers ion of the initialled draft letter 
that it had submitted to the Congress on 4 November 1993. 
4.89 The rapid emergence and growth of the sugar surplus exacerbated the financial condition of 
the industry in Mexico.  Even before the NAFTA  entered into force, the government had found it 
necessary to restructure the debt of the privatized  mills and extend new credit to them.  In such 
circumstances, the terms of Mexico's negotiate d access to the United States' sugar market took on 
particular significance. 
(iii) Throughout this time, the United States recognized the existence of a genuine dispute 
4.90 It is important to note that throughout this time, the USDA, an agency of the United States' 
Executive Branch, repeatedly acknowledged in its pub lications that there was a dispute between the 
two States over their bilateral trade in sweetene rs.  In October 2000, the USDA commented in its 
report entitled "Mexico:  Sugar Semi-Annual 2000": 
"According to NAFTA, the duty-free access quantity for sugar for MY 2000 will 
increase.  The United States and the Mexi can governments went through difficult 
negotiations because of the confusion betw een the original NAFTA document and a 
'side letter' allowing different quantities of  Mexican sugar to be exported to the 
United States  As of the writing of this report, no agreement has been reached and 
Mexico has already filed for a NAFTA dispute resolution panel under Chapter XX of 
NAFTA .  The Undersecretary of SECOFI, Luis de la Calle, stated that if the NAFTA 
Agreement conditions are not respected there will be no other solution than to appeal 
to the dispute resolution panel.  On the other hand, the Mexican sugar producers have 
repeatedly mentioned that if NAFTA is not  respected, they will request the Mexican 
                                                      
21 From 1985 to 1988, Mexico had a sugar surplus. From 1989 to 1994 it had a deficit. Mexico has 
generated production surpluses from 1995 until 2002.  See " Resumen Anualizado de Balance Azucarero de 
México", Evolución histórica por año calendario a partir de 1989.  Exhibit MEX-15. 
22 The USDA noted in 1996 that the industry was increasing its output due to better harvesting and 
post-harvest technology as well as higher factory yiel ds.  See USDA, "Mexican Sugar Output Forecast to 
Decrease", September 17, 1996, p. 1.  Exhibit MEX-16. 
23 The USDA noted in its report entitled "Mexican Sugar Exports to Increase", April 10, 1998, p. 3, that 
the cañeros  (Mexican sugar cane growers) had been making technical improvements.  Sugarcane yields per 
hectare increased from an average of 68 MT/ha in 1990 to about 72 MT/ha in 1997 due to technical 
improvements.  Exhibit MEX-17. 
24 The United States HFCS industry has, to use the USDA's words, "been  plagued with excess 
capacity" and the Mexican market was seen as an attractiv e nearby market in which to export excess production. 
See USDA Economic Research Service, "United St ates Mexican Sweeteners Trade Mired in Dispute", 
Agricultural Outlook , September 1999, p. 18.  The USDA noted that  although HFCS sales in the United States 
increased by 13 per cent in the 1994-1997 period, the increase was not large enough to absorb the production 
surplus.  "As a result, the sector f aced tough adjustments, with some sma ller operations leaving the business and 
others selling to or attracting investors from among larger companies."  Exhibit MEX-18.  WT/DS308/R 
 Page 21 
 
 
 government to apply safeguards to close the border to United States HFCS.  On 
September 19, 2000, however, USDA a nnounced the Fiscal 2001 tariff-rate quotas 
for sugar, where Mexico was allocated 10 5,788 MT of quota to comply with the 
United States' NAFTA obligation.  The Mexi can government will have to wait for the 
NAFTA dispute resolution panel decision.   Mexico still believes it should have 
complete access for all of its excess sugar, which it estimates at over 500,000 MT ."25  
(emphasis added) 
(iv) The United States' refusal to submit to dispute settlement 
4.91 Mexico and the United States disagreed over th e letters exchanged in 1993.  Mexico had 
generated a surplus and believed that it had a right  to export larger amounts of sugar to the United 
States' market than the United Stat es was prepared to admit.  Mexico therefore took steps during the 
late 1990s to resolve the dispute through the NAFTA  general dispute settlement  mechanism stipulated 
in Chapter XX.  Unfortunately, the critical element of automaticity that differentiates the WTO's dispute settlement process from that of the GA TT 1947 was not present in the NAFTA.  Mexico 
therefore requested that the United States give its c onsent for the establishment of an arbitral panel. 
4.92 Mexico submitted a formal request for consultations, which took place but did not lead to a 
resolution of the dispute.  Mexico then request ed a meeting of the Free Trade Commission, the second 
step of the proceeding, which took place as well, but  it too failed to resolve the dispute.  Finally, 
Mexico formally requested the establishment of an arbitral panel, but the United States refused its 
establishment.  To date, the United States has blocke d Mexico's efforts to resolve the dispute through 
the NAFTA institutional mechanisms. 
4.93 Mexico and the United States have also held c onsultations and negotiati ons at various times 
over the past decade.  However, they have been un able to reach an agreement through that channel 
either.  It warrants noting that it was in the interest s of certain parties to prolong the dispute.  As long 
as the Mexican market remained in a state of dise quilibrium, the Mexican industry would be subject 
to greater financial stress and exits from the Mexica n sugar industry would be that much more likely.  
This in turn could be expected to reduce Mexico's  ability to generate a surplus.  Thus, the longer it 
would take to resolve this dispute, the better for certain United States interests. 
(c) The decision to impose the IEPS on certain beverages 
4.94 On 3 September 2001, the Government was confront ed with an urgent need to respond to the 
prospect that, due to depressed market conditions, ma ny mills would be unable to finance the planting 
of the next year's crop.  The Government theref ore deemed it necessary to expropriate 27 of the 
nation's 61 sugar mills. 
4.95 Although the government intervention assisted in resolving some of the financial problems 
caused by the domestic surplus, Mexico still faced the fact that HFCS was displacing Mexican sugar 
from the soft drinks segment and Mexico was unabl e to export the displaced surplus sugar to the 
United States. 
4.96 The Congress' action therefore was intended to re balance the situation so that surplus sugar 
that should have been exportable to the United States could be sold in the domestic market.  The tax, 
which is a temporary and proportionate measure, is  intended to return the Mexican market to the 
status quo ante  pending a resolution of the dispute on the bilateral agreement governing trade in 
sweeteners. 
                                                     
 
25 USDA, Mexico Sugar Semi-Annual 2000 , 10 October 2000, p. 4.  Exhibit MEX-20. WT/DS308/R 
Page 22  
 
 4.97 Mexico respectfully requests the Panel to bear these facts in mind as it considers the United 
States' complaint. 
3. Legal arguments 
(a) This dispute arises out of a dispute under the NAFTA regarding bilateral trade in sweeteners 
4.98 There is a genuine dispute concerning the volume of sugar that can be exported to the United 
States duty-free.  According to the NAFTA, Mexico has the right to dispose of its total net sugar 
production surplus, which is particularly important given the displacement of sugar by HFCS in the 
Mexican market. 
4.99 Insofar as the United States' complaint about the I EPS tax is concerned, it is important for this 
Panel to understand that the NAFTA's chapter on trad e in goods is derived from the GATT.  Indeed, 
the NAFTA obligation that deals with internal  taxes is precisely Article III of the GATT 1994. 
4.100  The United States claims that the measures adopt ed by Mexico violate only Article III of the 
GATT 1994.  This has been explicitly incorporated  in the NAFTA's rules governing trade in goods. 
4.101  There is, therefore, a forum available to hear all of the parties' claims together. 
(b) Mexico requests a preliminary ruling:  the Panel should decline to exercise its jurisdiction 
4.102  Mexico recognizes that the Panel has prima faci e jurisdiction to hear and decide the United 
States' claims even though they are inextricably linked to a larger dispute concerning compliance with 
its own obligations under the NAFTA.
26   Mexico submits, however, that the Panel also has 
jurisdiction to decide whether to exercise its substa ntive jurisdiction in the circumstances of a dispute 
such as the instant case. 
4.103  Like any other international court or tribunal,  this Panel has certai n implied jurisdictional 
powers that derive from its nature as an adjudicativ e body.  This implied or incidental jurisdiction 
includes the jurisdiction to decide whether it shoul d refrain from exercising substantive jurisdiction 
that has been validly established. 
4.104  The power to refrain from exercising jurisdicti on should be used sparingly and only in the 
most extraordinary circumstances; but it can be  employed when the underlying or predominant 
elements of a dispute derive from rules of intern ational law under which claims cannot be judicially 
enforced in the WTO, such as the NAFTA provisions.  It warrants noting that in the GATT 1947 
dispute on US –  Sugar Quota , the United States argued against the Panel taking jurisdiction because 
its measures concerning sugar imports from Nicaragua were only one aspect of a larger State-to-State dispute.  The United States stated that "it was neither invoking any exceptions under the provision of the General Agreement nor intending to defend its ac tions in GATT terms".  It also stressed that its 
reduction in Nicaragua's sugar import quota "was fully justified in the context in which it was taken" 
and concluded: 
"The United States was of the view that attempting to discuss this issue in purely 
trade terms within the GATT, divorced fro m the broader context of the dispute, 
would be disingenuous.  The resolution of that dispute was certainly desirable, and 
                                                     
 
26 Under NAFTA Article 2005, the Parties agreed th at, subject to certain conditions, " … disputes 
regarding any matter arising under both this Agreement and the General Agreement on Tariffs and Trade , any 
agreement negotiated thereunder, or any successor agreem ent (GATT), may be settled in either forum at the 
discretion of the complaining Party".  WT/DS308/R 
 Page 23 
 
 
 would also result in the lifting of the ac tion which Nicaragua had challenged before 
the Panel, but the United States did not believe  that the review and resolution of that 
broader dispute was within the ambit of the GATT."27 
4.105  A WTO panel should also refrain from exercising its jurisdiction when one of the disputing 
parties refuses to take the matter to the appropriate forum. 
4.106  The history, prior procedures, and substantive c ontent of the bilateral sweeteners trade dispute 
demonstrate that the measures challenged by the Un ited States before the WTO are inseparable from 
the non-WTO claims over which the Panel has no jurisd iction.  There is a forum available that could 
be seized with both disputing parties' claims and whic h could consider all the relevant facts.  But this 
Panel will only be presented with a slice of the facts and legal issues at dispute in the NAFTA context. 
4.107  The United States would suffer no prejudice from having its GATT Article III claim heard as 
NAFTA Article 301 claims.  On the other hand, Mexico suffers prejudice from having its measure 
examined by the Panel alone: 
 – The United States is rewarded for its obstructionism which undermines the regional 
free trade agreement's dispute settlement process and undermines the international 
legal system; 
 
– Mexico continues to be unable to have it s legitimate grievance considered;  and   
 – defences and exceptions that are available to  Mexico in the other forum may not be 
available to it here. 
 
4.108  In these circumstances, addressing the United States' claims would be inconsistent with the 
basic aim of WTO dispute settlement, namely, to "secure a positive solution to a dispute".
28   Since 
this Panel cannot resolve all the matters at issue in  this dispute, this important objective cannot be 
achieved. 
(c) Request for specific recommendation 
4.109  If the Panel decides to take jurisdiction over this  complaint, Mexico will request that it give 
special consideration to the formulation of its r ecommendations.  In particular, Mexico will request 
that the Panel recommend that the parties take steps to resolve the sweeteners trade dispute within the 
NAFTA framework. 
4.110  Mexico would also request the Panel, in the c ourse of its deliberations, to give the fullest 
weight to Mexico's status as a de veloping country and to the fact that  agrarian reform entails a lengthy 
process of adjustment, the social consequences of whic h are ignored by governments at their peril.   
Although Mexico has made great progress over the l ast two decades, it remains a developing nation 
and its long-standing structural problems of povert y in the rural economy cannot be brushed aside.  
There are very real social consequences to this dispute for Mexico's agrarian society.  The WTO 
agreements contain principles and rules that are intended to accord more favourable treatment to 
developing countries and the necessary latitude need ed to advance economically without provoking 
social crises. 
                                                      
27 Panel report adopted on 13 March 1984, BISD 31S/67, paragraphs 3.10 and 3.11.  In that dispute, 
while the panel noted that the measures were only one as pect of a broader problem, it proceeded to examine the 
claims of Nicaragua solely in the li ght of the GATT provisions.  In Mexi co's view, this reflected a pre-WTO 
approach to questions of international law that should be revisited.    
28 Article 3.7 of the DSU. WT/DS308/R 
Page 24  
 
 4.111  Finally, Mexico also requests the Panel, if it takes jurisdiction, to employ particular care in 
terms of how it formulates its findings and recomm endations.  In particular , the Panel should take 
special care to record that whatev er the respective States' legal right s may be under applicable rules of 
international law, its findings apply solely to the parties' respective rights and obligations under the 
WTO agreements and cannot be taken to  pre-judge such other legal rights. 
(d) The measure was not intended to afford prot ection to domestic production within the meaning 
of Article III of the GATT 1994 
4.112  The parties are in agreement that the measures at  issue are tax measures that apply to specific 
goods.  The parties also agree that they were impo sed to "stop the displacement of domestic cane 
sugar by imported HFCS and soft drinks and syrups sweetened with HFCS".
29 
4.113  Mexico concedes that HFCS and cane sugar are s ubstitutable products in certain applications.  
It was because of their substitutability that Mexico s ought to protect its interests by ensuring that if 
HFCS displaced sugar in a market segment such as the soft drinks segment, Mexico would be able to 
export the displaced surplus sugar to the United Stat es, so as to avoid an adverse effect on its sugar 
market.  When the United States blocked this possib ility, Mexico took action to protect its interests 
and to return to the status quo ante . 
4.114  In assessing the matter before it, Mexico submits that the Panel must consider the legitimate 
objective that the Mexican Congress was pursu ing in introducing the tax at issue. 
4.115  In light of the unique circumstances of this dispute and the arguments discussed above, 
Mexico will not respond to the United States' claims that the measures at issue are inconsistent with 
GATT 1994 Article III. 
(e) In the event of any inconsistency, the measure is justifiable under Article XX(d) 
4.116  Even if the IEPS tax were found prima facie to violate Article III, the measure is justifiable 
under Article XX of GATT 1994, which provides: 
"Subject to the requirement that such me asures are not applied in a manner which 
would constitute a means of arbitrary or unjustifiable discrimination between 
countries where the same conditions prev ail, or a disguised restriction on 
international trade, nothing in this Agre ement shall be construed to prevent the 
adoption or enforcement by the contracting party of measures: 
... 
(d) necessary to secure compliance with laws or regulations 
which are not inconsistent with the provisions of this Agreement … " 
4.117  It is established that in order to demonstrate th at a measure is justified under Article XX, the 
following sequence of steps applies: first, provisi onal justification by the characterization of the 
measure as being covered under one of the paragraphs  of GATT Article XX;  and second, appraisal of 
the measure under the chapeau of GATT Article XX.30   Mexico will address each in turn.  The 
measures at issue can be justified under Article XX(d) for the following reasons. 
                                                      
29 Id., para. 3. 
30 Report of the Appellate Body on US – Gasoline , p. 24, DSR 1996:1, 3, at 22.  WT/DS308/R 
 Page 25 
 
 
 4.118  The measures are "necessary to secure complianc e with laws and regulations which are not 
inconsistent with the provisions" of the GATT 1994.  In Korea – Various Measures on Beef , referring 
to its Report on US – Gasoline , the Appellate Body set forth the fo llowing two elements for paragraph 
(d) of Article XX: 
"For a measure, otherwise inconsistent with  GATT 1994, to be justified provisionally 
under paragraph (d) of Article XX, two elemen ts must be shown.  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."
31 
4.119  For the reasons set out in the factual section of this submission, the measures are "designed 
to" secure the United States' compliance with the NAFTA.  The NAFTA, an international agreement, 
is a law that is not inconsistent with the provisions of the GATT 1994. 
4.120  GATT Article XXIV expressly permits contracting parties to establish free trade areas and 
customs unions.  Far from being "inconsistent with the provisions" of the GATT 1994, agreements that establish free trade areas are expressly contemplated and authorized by the GATT 1994. 
4.121  Such agreements routinely include mechanisms  to resolve disputes concerning the rights and 
obligations provided for therein.  The NAFTA c ontains detailed dispute settlement procedures. 
4.122  The measure at issue was also 'necessary' to  secure the United States' compliance with the 
NAFTA.  It is important to note that in order to  be deemed 'necessary' within the meaning of 
Article XX(d) of the GATT 1994, a measure need not  be the only alternative available to attain a 
Member's legitimate objective to secure complian ce with laws or regulations which are not 
inconsistent with the provisions of the GATT.   The Appellate Body made this clear in Korea – 
Various Measures on Beef : 
"We believe that, as used in the context of Article XX(d), the reach of the word 
'necessary' is not limited to that which is 'i ndispensable' or 'of absolute necessity' or 
'inevitable'.  Measures which are indispensable  or of absolute necessity or inevitable 
to secure compliance certainly fulfil the requirements of Article XX(d).  But other 
measures, too, may fall within the ambit of this exception.  As used in Article XX(d), the term 'necessary' refers, in our view, to a range of degrees of necessity.  At one end of this continuum lies 'necessary' understood as 'indispensable'; at the other end, is 
'necessary' taken to mean as 'making a contri bution to'.  We consider that a 'necessary' 
measure is, in this continuum, located significantly closer to the pole of 
'indispensable' than to the opposite pole of simply 'making a contribution to' taken to 
mean as 'making a contribution to'.  
In appraising the 'necessity' of a measure in  these terms, it is useful to bear in mind 
the context in which 'necessary' is found in  Article XX(d).  The measure at stake has 
to be 'necessary to ensure compliance with  laws and regulations … , including those 
relating to customs enforcement, the enforcement of [lawful] monopolies … , the 
protection of patents, trade marks and copyrights, and the prevention of deceptive practices'. (Emphasis added)  Clearly, Article XX(d) is susceptible of application in respect of a wide variety of 'laws and regulati ons' to be enforced.  It seems to us that a 
treaty interpreter assessing a measure claime d to be necessary to secure compliance 
of a WTO-consistent law or regulation may,  in appropriate cases, take into account 
the relative importance of the common interest s or values that the law or regulation to 
                                                     
 
31 Report of the Appellate Body on Korea – Various Measures on Beef,  para. 157. WT/DS308/R 
Page 26  
 
 be enforced is intended to protect.  Th e more vital or important those common 
interests or values are, the easier it would be to accept as 'necessary' a measure designed as an enforcement instrument."
32  
4.123  The measure at issue was "necessary" within th e meaning of the review conducted by the 
Appellate Body. 
(a) First , owing to the nature of the trade, it was deemed necessary that an internal tax be 
imposed; 
(b) Second , ensuring that NAFTA obligations be co rrectly interpreted and applied is a 
vital interest of Mexico; 
(c) Third , notwithstanding Mexico's repeated atte mpts to resolve its grievance, the 
United States has refused to submit to di spute settlement in compliance with its 
NAFTA obligations, and has preferred to drag  on bilateral discussions that therefore 
have not resulted in an alternative solution .  At the same time, HFCS has enjoyed the 
benefits of market access in Mexico, while the Mexican sugar industry is unable to 
exercise what Mexico believes to be its right  to export significant sugar surpluses to 
the United States.  The economic damage ca used by the United States' continued 
refusal is manifest and, in the circumstances, it was necessary to take action to protect Mexico's legal interests and secure the Un ited States' compliance, not only with its 
market access commitments, but more importa ntly, with the institutional mechanisms 
that are fundamental to the NAFTA's proper operation; 
(d) Fourth , if the United States is able to succes sfully challenge Mexico's measures in 
this proceeding, while simultaneously refusi ng to have its own measures examined by 
a NAFTA Panel, an important object of the measures, i.e., creating a dynamic that has 
the possibility of inducing the United Stat es to submit to NAFTA dispute settlement 
or otherwise resolving the dispute, will be defeated. 
4.124  In Mexico's view, therefore, even if the I EPS tax contravened Article III, it is necessary to 
secure United States' compliance with its NAFTA oblig ations, in circumstances in which the ordinary 
means to accomplish that are not available, precisel y because the United States has blocked recourse 
to such means. 
4.125  Mexico notes that the United States has long insisted on its legal right to take action when 
another State impedes the operation of a treaty's dispute settlement mechanism: 
"Wherever it could, the United States would challenge unfair practices under the 
dispute settlement provisions of the Genera l Agreement or the Tokyo Round Codes, 
but where other contracting parties prevented or impeded that process or blocked efforts to ensure that their practices we re covered by multilateral disciplines, the 
United States would act to protect its interests.  If such action was considered 
unilateral, it should be nevert heless recognized as perfectly justifiable, responsive 
action necessitated by the failure of bila teral or multilateral efforts to address a 
problem ."33  (emphasis added) 
4.126  Since the measure is provisionally justified unde r paragraph (d) of Article XX, Mexico will 
now establish that it also meets the require ments of the chapeau of that provision. 
                                                      
32 Id., paras. 161-162. 
33 GATT document C/163 of 16 March 1989, p. 4.  Exhibit MEX-29.  WT/DS308/R 
 Page 27 
 
 
 (i) There was no "arbitrary or unjustifiable discri mination between countries where the same 
conditions prevail" 
4.127  The Mexican market for HFCS has been domin ated almost exclusively by HFCS imported 
from the United States or produced domestically from corn imported from the United States.  The 
Appellate Body has had occasion to consider when  the General Agreement will permit a Member to 
take unilateral action that might otherwise be cont rary to the GATT under the chapeau of Article XX.  
The Appellate Body's Report on US – Shrimp (Article 21.5 – Malaysia34 ) concerned the United 
States' attempt to justify otherwise GATT-inconsiste nt extra-territorial measures under Article XX of 
the GATT 1994.  The United States conditioned cert ain trade advantages to exporting developing 
countries to the adoption of certain domestic polic ies and restrictions on imports of goods from 
countries that did not adopt such policies. 
4.128  US – Shrimp originally produced a decision against th e United States, but then, after changes 
in United States' policy, the Appellate Body upheld th e United States' restrictions, ordinarily contrary 
to GATT Article XI, on imports of shrimp imposed to save turtles. 
4.129  The key issue before the Appellate Body, when considering the revised measure, was whether 
the new United States' policy was applied in a manner that no longer constituted a means of "arbitrary 
or unjustifiable discrimination" between "countries wh ere the same conditions prevail" in the sense of 
the Article XX chapeau.  The Appellate Body c onfirmed that unilateral measures may, in certain 
circumstances, withstand scrutiny under Article XX. 
4.130  In doing so, the Appellate Body rejected Mala ysia's argument that demonstrating serious, 
good faith efforts to negotiate an international ag reement for the protection and conservation of sea 
turtles was not sufficient to meet the requirements of  the chapeau of Article XX.  Malaysia maintained 
that the chapeau actually required that  such an international agreement be concluded.  On this issue, 
the Appellate Body stated: 
"Under the chapeau of Article XX, an im porting Member may not treat its trading 
partners in a manner that would constitute 'arbitrary or unjustifiable discrimination'.  
With respect to this measure, the Unite d States could conceivably respect this 
obligation, and the conclusion of an inte rnational agreement might nevertheless not 
be possible despite the serious, good faith efforts of the United States .  Requiring that 
a multilateral agreement be concluded by the United States in order to avoid 'arbitrary or unjustifiable discrimination' in applying its measure would mean that any country 
party to the negotiations with the United States, whether a WTO Member or not, 
would have, in effect, a veto over whethe r the United States could fulfil its WTO 
obligations .  Such a requirement would not be reas onable.  For a variety of reasons, it 
may be possible to conclude an agreem ent with one group of countries but not 
another.  The conclusion of a multilatera l agreement requires the cooperation and 
commitment of many countries.  In our view, the United States cannot be held to have 
engaged in 'arbitrary or unjustifiable discr imination' under Article XX solely because 
one international negotiatio n resulted in an agreement while another did not. 
As we stated in US – Shrimp  [the original dispute], 'the protection and conservation of 
highly migratory species of sea turtles […] demands concerted and cooperative efforts on the part of the many countries w hose waters are traversed in the course of 
recurrent sea turtle migrations'.  [Footnote omitted]  Further, the 'need for, and the 
appropriateness of, such efforts have been recognized in the WTO itself as well as in 
a significant number of other international instruments and declarations'. [Footnote 
                                                     
 
34 US – Shrimp (Article 21.5 – Malaysia) . WT/DS308/R 
Page 28  
 
 omitted]  For example, Principle 12 of the Rio Declaration on Environment and 
Development states, in part, that '[e]nvi ronmental measures addressing transboundary 
or global environmental problems should, as far as possible, be based on international 
consensus'. [Footnote omitted]  Clearly, and 'as far as possible', a multilateral approach is strongly preferred.  Yet it is one  thing to prefer a multilateral approach in 
the application of a measure that is pr ovisionally justified under one of the 
subparagraphs of Article XX of the GA TT 1994;  it is another to require the 
conclusion of a multilateral agreement as a condition of avoiding 'arbitrary or 
unjustifiable discrimination' under the chapeau of Article XX.  We see, in this case, no such requirement."
35  (emphasis added) 
4.131  The Appellate Body then upheld the Article 21. 5 panel's reliance on a non-WTO treaty, the 
Inter-American Convention for the Protection and Conservation of Marine Turtles, as a factual 
reference or point of comparison when deciding th at the new United States' policy was no longer 
discriminatory in the sense of the chapeau of GATT Article XX: 
"Thus, in the previous case, in examining th e original measure, we relied on the Inter-
American Convention in two ways.  First, we used the Inter-American Convention to 
show that 'consensual and multilateral procedures are available and feasible for the establishment of programmes for the conservation of sea turtles.' [Footnote omitted].  In other words, we saw the Inter-American Convention as evidence that an alternative 
course of action based on cooperation a nd consensus was reasonably open to the 
United States.  Second, we used the Inter-A merican Convention to show the existence 
of 'unjustifiable discrimination'.  The In ter-American Convention was the result of 
serious, good faith efforts to negotiate a regional agreement on the protection and 
conservation of turtles, including efforts made  by the United States.  In the original 
proceedings, we saw a clear contrast between  the efforts made by the United States to 
conclude the Inter-American Convention a nd the absence of serious efforts on the 
part of the United States to negotiate other similar agreements with other WTO 
Members.  We concluded there that such a disparity in efforts to negotiate an international agreement amounted to ' unjustifiable discrimination'. [Footnote 
omitted.] 
With this in mind, we examine what the Pane l did here.  In its analysis of the Inter-
American Convention in the context of Malaysia's argument on 'unjustifiable 
discrimination', the Panel relied on our original Report to state that 'the Inter-
American Convention is evidence that th e efforts made by the United States to 
negotiate with the complainants before im posing the original measure were largely 
insufficient'. [Footnote omitted.]  The Panel went on to say that 'the Inter-American Convention can reasonably be considered as a benchmark of what can be achieved 
through multilateral negotiations in the fi eld of protection and conservation.'  
[Footnote omitted.] 
At no time in US – Shrimp did we refer to the Inter-American Convention as a 
'benchmark'.  The Panel might have cho sen another and better word – perhaps, as 
suggested by Malaysia, 'example'.  [Foot note omitted.]  Yet it seems to us that the 
Panel did all that it should have done with respect to the Inter-American Convention, 
and did so consistently with our appro ach in United States – Shrimp.  The Panel 
compared the efforts of the United States to negotiate the Inter-American Convention 
with one group of exporting WTO Members with the efforts made by the United 
States to negotiate a similar agreement with another group of exporting WTO 
                                                     
 
35 US – Shrimp (Article 21.5 – Malaysia) , paras. 123-124.  WT/DS308/R 
 Page 29 
 
 
 Members.  The Panel rightly used th e Inter-American Convention as a factual 
reference in this exercise of comparison.  It  was all the more relevant to do so given 
that the Inter-American Convention was th e only international agreement that the 
Panel could have used in such a comparison.  As we read the Panel Report, it is clear to us that the Panel attached a relative value to the Inter-American Convention in 
making this comparison, but did not view the Inter-American Convention in any way 
as an absolute standard.  Thus, we disagree with Malaysia's submission that the Panel 
raised the Inter-American Convention to the ra nk of a 'legal standard'.  The mere use 
by the Panel of the Inter-American Convention as a basis for a comparison  did not 
transform the Inter-American Convention into  a 'legal standard'.  Furthermore, 
although the Panel could have chosen a more  appropriate word than 'benchmark' to 
express its views, Malaysia is mistaken in equating the mere use of the word 
'benchmark', as it was used by the Panel, with the establishment of a legal standard".
36 
4.132  The Appellate Body's analysis is of assistance in  this proceeding.  It examined actions taken 
by the respondent in relation to a subject falling out side of the WTO Agreements.  It did not require 
the United States to conclude an international agreemen t in that subject area, but rather required it to 
demonstrate that it had used serious, good faith effort s to do so.  That was sufficient because if, for 
reasons outside of the United States' control, such  an agreement could not be reached, another State 
would have a veto over the United States ' compliance with its WTO obligations. 
4.133  The parallels with the present case are obvious: 
 – the United States made market access commitments for Mexican sugar in the 
NAFTA, a subject that falls outside of  the WTO agreements (although expressly 
permitted by Article XXIV of the GATT 1994); 
  – a disagreement arose as to th e nature of those commitments; 
 
 – Mexico has constantly sought a resolution of the disagreement, including through its 
request for the establishment of a NAFTA dispute settlement panel and numerous 
efforts to achieve a negotiated solution; 
  – the United States has refused to consent to submit to dispute settlement proceedings 
and bilateral negotiations ha ve proved fruitless;  and 
 
 – therefore, the United States has essentia lly vetoed Mexico's ability to have its 
grievance resolved. 
 4.134  In such circumstances, Mexico exercised its in ternational law rights to rebalance the situation 
in a proportionate fashion. 
(ii) The measure is not a "disguised restriction on international trade" 
4.135  As the United States' first submission repeatedly  points out, the purpose of the measure has 
been stated by members of Congress and analysed by the Supreme Court of Justice.  The United 
States omitted to inform this Panel of the long- standing bilateral dispute and Mexico's continued 
efforts to resolve it, of its refusal to submit to dispute settlement under the NAFTA, and of the 
ineffectiveness of bilateral negotiations.  The Unite d States also failed to inform the Panel of the 
social and economic context of sugar production in Mexico, the crisis that the industry underwent, 
due, in large part, to a lopsided situation genera ted unilaterally by the United States, given the 
                                                     
 
36 Id., pp. 128-130. WT/DS308/R 
Page 30  
 
 Mexican industry's inability to export sugar surpluses to  its market, while at the same time imports of 
United States' HFCS and domestically produced HF CS from corn imported from the United States 
contributed greatly to generate such surpluses. 
4.136  Thus, the United States failed to explain precisely why the Congress acted as it did.  There 
has been no disguised restriction on trade.  Mexi co's measures constitute a proportionate, legitimate, 
and legally justified response to ac tions and omissions of the United St ates.  The Panel should also not 
lose sight that this is a particularly sensitive sect or, the social and economic implications of which 
cannot be ignored, especially given Mexico's stat us as a developing nation, and thus the greater 
difficulties that Mexico faces in addressing problems th at arise in ordinary circumstances, let alone in 
the extraordinary circumstances arising out of th e dispute concerning bilateral trade in sugar. 
4.137  In Mexico's view, therefore, even if the I EPS tax contravened Article III, it is necessary to 
secure the United States' compliance with its NAFTA  obligations and does not constitute a "disguised 
restriction on international trade". 
4. Conclusion 
4.138  Mexico respectfully requests the Panel to declin e to exercise its jurisdiction for the reasons set 
out in this Submission.  In the event that the Pane l does decide to exercise its jurisdiction, Mexico 
respectfully requests it to pay particular attention to  the circumstances that gave rise to the measures 
at issue in this case, in light of the complex social and economic problems of the sugar sector in Mexico, which were aggravated precisely by acts and omissions of the United States.  The Panel should also accord particular weight to Mexico's status as a developing country, especially in the 
context of the broader dispute concerning trade in  sweeteners between Mexico and the United States, 
and should take note of the singular importance that sugar production plays in supporting a significant 
number of Mexican farmers and their families.  Fina lly, the Panel should recognize the United States' 
intransigence in resolving this matter of crucial im portance to Mexico.  Mexico requests the Panel to 
find that, in the extraordinary circumstances of th is case, where in the face of an acknowledged 
dispute, the United States has refused to submit to  NAFTA dispute settlement, having exhausted all 
possibilities for third party dispute resolution, and wh ere years of seeking a negotiated settlement have 
been unsuccessful, the Mexican measures are ju stified under Article XX of the GATT 1994. 
D. O
PENING STATEMENT OF THE UNITED STATES AT THE FIRST MEETING OF THE PANEL  
4.139  This dispute is about a 20 per cent tax Mexi co enacted, effective 1 January 2002, on soft 
drinks and syrups other than those sweetened excl usively with cane sugar.  This tax – which is 
embodied in the IEPS – was imposed to stop the di splacement of Mexican cane sugar by imported 
HFCS in Mexican soft drink production.  That is what the Mexican Supreme Court has said, and what 
Mexico concedes in its first submission.37   This tax has had the desired effect. Today, despite the fact 
that Mexico is the second largest consumer of soft dr inks in the world, imports of HFCS for soft drink 
use have ceased; total HFCS exports  from the United States are just barely four per cent of their pre-
tax levels. 
4.140  HFCS and cane sugar are directly competitiv e and substitutable products as sweeteners for 
soft drink and syrup production:  Mexico concedes this point in its first submission.38   Cane sugar and 
HFCS are not similarly taxed:  the tax is not impos ed on soft drinks and syrups sweetened only with 
cane sugar, and it is prohibitively high, over four tim es the cost of the HFCS used in a typical soft 
drink.39    Mexico's tax is inconsistent with Mexico's obligations under the second sentence of 
                                                      
37 Mexico first written submission, para. 111. 
38 Mexico's first written submission, paras. 5, 34, 112. 
39 United States' first written submission, para. 45.  WT/DS308/R 
 Page 31 
 
 
 Article III:2 as a tax on HFCS and soft drinks and sy rups sweetened with HFCS.  Similarly, Mexico's 
tax discriminates in favour of Mexican soft drinks and syrups sweetened with cane sugar, and against 
soft drinks and syrups sweetened with HFCS, in breach of the first sentence of Article III:2.  In 
addition, the tax rewards Mexican soft drink pro ducers for using domestic cane sugar and punishes 
them for using HFCS, in breach of Article III:4. 
4.141  The United States first submission presents a complete and documented prima facie case, 
including evidence and argument sufficient to estab lish a presumption that Mexico has infringed its 
Article III obligations.  The United States has met its burden of proof. 
4.142  In its first submission, rather than contesting the United States prima facie case under 
Article III, Mexico attempts to change the subject by raising issues that are irrelevant or otherwise 
outside the Panel's terms of reference – includi ng the economic importance of the Mexican sugar 
industry, bilateral negotiations on sugar trade, a nd bilateral obligations unde r the NAFTA.  The Panel 
need not and should not engage itself on these issues .  These issues are outside the Panel's terms of 
reference. 
4.143   In light of its extended discussion of issues i rrelevant to this dispute, Mexico's first 
submission, while lengthy, appears actually to narrow  the issues before the Panel.  In fact, Mexico 
affirmatively states that it "will not respond"  to the United States' Article III claims.40   That in effect 
leaves Mexico's so-called request for a "preliminary  ruling" and its Article XX(d) defence as the only 
contested issues before the Panel today.  For that  reason, the United States will not repeat in its 
statement the extensive arguments in its first subm ission detailing Mexico's breach of its obligations 
under Articles III:2 and III:4 of the GATT 1994.  Instead, having established a prima facie case, the 
United States will operate on the assumption – as Mexico  does in its first submission – that Mexico's 
tax is in breach of Article III and proceed to addr ess Mexico's Article XX(d) defence of that breach 
and its preliminary ruling request. 
1. Article XX(d) 
4.144  Turning first to Article XX(d), Mexico asserts  that alleged United States non-compliance with 
NAFTA obligations can justify action by Mexico in  violation of its WTO obligations.  There is 
absolutely no basis in Article XX(d), the DSU, or elsewhere in the WTO Agreement for Mexico's 
proposition.  Simply nothing in those agreements supports the contention that a WTO Member may violate its WTO obligations in order to punish anot her Member because it thinks that Member has not 
complied with its obligations under another international agreement. 
4.145  Accordingly, Mexico cannot possibly satisfy the burden of demonstrating that its tax satisfies 
the conditions for justification under Article XX(d ).  While Article XX(d) permits a Member to 
maintain measures that are "necessary to secure comp liance with laws or regulations which are not 
inconsistent" with the provisions of the GATT 19 94, NAFTA is not a "law or regulation," and 
Mexico's tax is not "necessary to secure compliance." 
4.146  In the first instance, international obligati ons owed Mexico by other countries under the 
NAFTA and other international agreements are not "laws" or "regulations" within the meaning of 
Article XX(d).  Rather, Article XX(d) allows a Memb er, under certain conditions, to adopt or enforce 
measures necessary to secure compliance with that Member's own laws and regulations – for example, those laws and regulations Mexico may have in place to implement its own NAFTA obligations.  It does not, however, permit a Member  to claim an Article XX(d) exception for measures 
to secure compliance by another Member with its oblig ations under an international agreement.  It 
should go without saying that an "international agre ement" is distinct from a "law" or "regulation." 
                                                     
 
40 Mexico's first written submission, para. 114. WT/DS308/R 
Page 32  
 
 4.147  For these reasons and others which the United States can elaborate further in subsequent 
submissions, Mexico has wholly failed to meet its burden of establishing a prima facie basis for its 
Article XX(d) defence.  There is simply nothing  in the WTO Agreement to support its claim. 
2. Developing countries 
4.148  Separately, Mexico asserts that the Panel must  take into account that the "WTO Agreement 
contains principles and provisions the purpose of wh ich is to grant more favourable treatment to 
developing countries."  While the cove red agreements do in fact contai n certain provisions that accord 
special and differential treatment to developing co untries, Mexico has not identified any provision 
that might permit Mexico to accord less favourable  treatment to products of another WTO Member 
than it accords to its own like products or to discrim inate against directly competitive or substitutable 
products of another Member in  favour of domestic production. 
3. Recommendations 
4.149  Mexico also asks the Panel to make a specific recommendation that "the parties in this dispute 
take steps under NAFTA to resolve the entire dispute re lating to trade in sweeteners."  It is unclear in 
what context Mexico proposes the Panel make su ch a recommendation.  As the DSU makes clear 
under Article 19.1, a panel only makes a recommend ation after having found a Member's measure 
inconsistent with that Member's  WTO obligations and, even then , may only recommend that the 
Member bring its WTO-inconsistent measure into conformity.
41   Panel suggestions under Article 19.1 
are likewise limited to being directed at the Member whose measure was found to be WTO-
inconsistent.  The Panel shoul d reject Mexico's request. 
4. Preliminary ruling request 
4.150   Turning to Mexico's so-called "preliminary ruli ng" request, first this is not a request for a 
"preliminary ruling."  If anything, it is a request for a "non-ruling" and there would be nothing "preliminary" about it.  Mexico seeks to resolve the en tire dispute on a definitive basis in this manner.  
It is not that Mexico questions  the Panel's jurisdiction and seeks a preliminary ruling in order to 
clarify that jurisdiction for purposes of this proceed ing.  Rather, Mexico admits that the Panel has 
jurisdiction to hear and decide the United States cl aims, but asks the Panel to refrain from exercising 
that jurisdiction.
42  Let the United States present the situation plainly and clearly:  Mexico admits that 
it imposed the IEPS – a measure it does not contest is in breach of Article III – to stop the displacement of Mexican cane sugar by imported HFCS.  Mexico then claims that it has done so to 
coerce its desired solution to a bilateral dispute.  And now Mexico wishes the Panel to assist it in this 
WTO-inconsistent action by denying the United States its right to WTO dispute settlement. 
4.151  There is absolutely no basis for Mexico's request .  In fact, the DSU and the Panel's terms of 
reference in this dispute specifically preclude it.  Article 7.2 of the DSU states that panels "shall 
address the relevant provisions in any covered agreement or agreements cited by the parties" to a 
dispute.  The DSU further instructs panels in Artic le 11 to make an "objective assessment of the facts 
of the case and the applicability of and confor mity with the relevant covered agreements."
43  In this 
respect, the Dispute Settlement Body ("DSB") has de fined the Panel's terms of reference in this 
dispute as follows: 
"To examine, in the light of the relevant provisions of the covered agreements cited 
by the United States in document WT/DS308/4,  the matter referred to the DSB by the 
                                                      
41 See DSU Articles 11, 19.1. 
42 Mexico's first written submission, para. 93. 
43 See also  DSU Article 12.7.  WT/DS308/R 
 Page 33 
 
 
 United States in that document, and to ma ke such findings as will assist the DSB in 
making the recommendations or in giving the rulings provided for in those agreements."
44  
4.152  The "matter referred to the DSB by the United Stat es" in its panel request covers Mexico's tax 
on HFCS and soft drinks and syrups sweetened wi th HFCS, and the consistency of that tax with 
Mexico's obligations under Article III of the GATT 1994.   Given the explicit instructions set forth in 
the DSU and the Panel's terms of reference, Mexico 's argument that the Panel should simply decline 
to exercise jurisdiction over this dispute is untenable. 
4.153  Mexico's attempt to liken its request for the Pane l to decline jurisdiction to past panels' use of 
"judicial economy" is misplaced.45  Judicial economy is a concept under which panels have declined 
to address certain claims raised by a party when reso lution of such claims is not needed for the Panel 
to resolve the matter at issue in the dispute.  J udicial economy is typically used by panels when a 
complaining party alleges that a measure breaches several provisions of the WTO Agreement, but a finding of breach with respect to some, but not all,  of the provisions is sufficient for the DSB to 
recommend that the measure be brought in to conformity with the WTO Agreement.
46  I t  i s  n o t  a  
concept a panel may draw upon as a basis for declin ing to exercise jurisdiction over each and every 
claim raised by the complaining party.  For a pa nel to decline jurisdiction over each and every claim 
raised would, of course, leave the DSB unable to make any recommendations or rulings with respect 
to the matter.  Such an outcome is  clearly incompatible with the function of panels to "assist the DSB 
in making the recommendations and . . .  rulings pr ovided for in the covered agreements."  As the 
Appellate Body found in Australia – Salmon , under the DSU panels are obligated "to address those 
claims on which a finding is necessary in order to  enable the DSB to make sufficiently precise 
recommendations and rulings so as to allow fo r prompt compliance by a Member with those 
recommendations and rulings."47 
4.154   Equally unsupported by the DSU is Mexico's  argument that the Panel's exercise of 
jurisdiction would be incompatible with the "aim  of the dispute settlement mechanism to secure a 
positive solution to a dispute."  In Mexico's view , "a positive solution" to the dispute can only be 
found before a NAFTA panel.  However, this "d ispute" is a WTO dispute that has been brought 
before this WTO dispute settlement Panel to reso lve a dispute over Mexico's obligations under the 
covered agreements.  Although Mexi co attempts to recast this di spute as involving United States' 
obligations under the NAFTA, it is Mexico's WTO obligations  that comprise the matter in dispute.  
The NAFTA is not a covered agreement, nor is it within  this Panel's terms of reference.  Accordingly, 
the United States has not cited to the NAFTA.  The United States notes, however, that it has a 
markedly different view than Mexico of the re levant NAFTA provisions and the series of events 
transpiring under the NAFTA.  And that is just the point – this Panel is not in a position to make 
findings on those NAFTA issues, so there is no r eason to elaborate on the parties' differing positions 
on those issues.  Moreover, although not relevant to this dispute, the United States notes that neither 
Mexico nor the United States have agreed in th e NAFTA to prejudice their WTO rights.  Indeed, 
under the NAFTA the parties begin by affirming their GATT rights and obligations. 
4.155  Mexico also argues that although the Panel ha s prima facie jurisdiction over the present 
dispute, the more "appropriate" forum fo r its resolution is before a NAFTA panel.48  Again, Mexico's 
proposition finds no basis in the DSU or elsewhere  in the WTO Agreement.  That WTO Members 
may choose to settle disputes involving a mixtur e of WTO and non-WTO rules in other fora, as 
                                                      
44 WT/DS308/5/Rev.1. 
45 Mexico's first written submission, para. 94. 
46 See, e.g., Appellate Body Report on US – Wool Shirts and Blouses p. 17, DSR 1997:I, 323, at 339. 
47 See, e.g., Appellate Body Report on Australia – Salmon , para 223. 
48 Mexico's first written submission, para. 97. WT/DS308/R 
Page 34  
 
 Mexico observes, hardly justifies a WTO panel re fusing to exercise jurisdiction over the dispute for 
which it was established. 
4.156  One party's determination that another forum is  more "appropriate" similarly does not justify 
such a refusal to exercise jurisdiction.
49  In fact, in India – Quantitative Restrictions , the Appellate 
Body dismissed India's arguments that the panel l acked jurisdiction to decide claims that India 
thought more appropriately resolved before the WTO Balance of Payments Committee.  The 
Appellate Body stated: 
"According to Article XXIII, any Member wh ich considers that a benefit accruing to 
it directly or indirectly under the GATT 1994 is  being nullified or impaired as a result 
of the failure of another Member to carry ou t its obligations, may resort to the dispute 
settlement procedures of Article XXIII.  Th e United States considers that a benefit 
accruing to it under GATT 1994 was nullified or impaired as a result of India's 
alleged failure to carry out its  obligations regarding balance of payments restrictions 
under Article XVIII:B of the GATT 1994.  Therefore, the United States was entitled to have recourse to the dispute settlement procedures of Article XXIII with regard to 
the dispute." 
4.157  Likewise, the United States is entitled to have r ecourse to the dispute settlement procedures of 
Article XXIII and the DSU with respect to Mexi co's failure to carry out its obligations under 
Article III of the GATT.  For this reason, and ot hers mentioned, the Panel should deny Mexico's 
request for it to decline jurisdiction in this dispute. 
E. O
PENING STATEMENT OF MEXICO AT THE FIRST MEETING OF THE PANEL  
1. Introduction 
4.158  The United States' claims raise a question of singular complexity and significance: 
(a) Mexico and the United States established a particular regime for bilateral trade in 
sweeteners, mainly sugar and HFCS. 
 
 (b) These products are substitutes for each othe r in certain uses and, thus, compete in an 
important segment of the Mexican market. 
  (c) A dispute exists between the two countr ies with regard to the access of Mexican 
sugar to the United States market. Mexico  considers that, in accordance with 
NAFTA, it has the right to export all of its sugar surpluses;  the United States 
considers that Mexico has the right to e xport a lesser amount and, since the United 
States controls imports of Mexican sugar in to its market, it has limited the amount of 
sugar that can gain access to that market through the allocation of import quotas. 
  (d) Mexican sugar surpluses depend on sugar and HFCS production in Mexico as well as 
Mexican HFCS imports from the United States, so with regard to the consumption of 
both products, the generation of sugar surpluses is, in part, dependent on HFCS 
production and importation. 
 
                                                     
 
49 Appellate Body Report on India – Quantitative Restrictions para. 84; see also  Panel Report on 
Turkey – Textiles , paras. 9.15-9.17.  WT/DS308/R 
 Page 35 
 
 
  (e) Consequently, Mexican HFCS production and imports, in addition to the United 
States' restrictions on imports of Mexican  sugar, has had a significant economic 
impact on Mexico's sugar industry. 
  (f) The NAFTA establishes a mechanism for resolving disputes related to the 
interpretation and application of the treaty or in circumstances in which one of the 
Parties considers that a measure of the other Party is or could be inconsistent with the 
Treaty's provisions. 
  (g) Mexico activated the dispute settlement  mechanism and request ed the establishment 
of an arbitral panel to resolve the dis pute relating to Mexican sugar exports. The 
United States has refused to submit to this mechanism. 
  (h) Mexico has also been seeking a negotiate d solution of the dispute, but these efforts 
have been fruitless as well. 
 
4.159  Mexico considers that in these extraordinary circumstances it has the right to protect its 
interests.  Indeed, the Mexican measures at issue in  this dispute cannot be understood without bearing 
in mind that they were implemented in response to unilateral restrictions imposed by the United States 
on Mexican sugar imports, in addition to its refu sal to submit to the NAFTA dispute settlement 
mechanism, and the inability to ach ieve a solution through other means. 
4.160  In submitting this claim in the framework of the WTO, the United States apparently believes 
that a WTO Member must simply suffer the economic and social distress caused by another Member's intransigence;  this appears to constitute a depart ure from the United States' long-held position.  As 
discussed in Mexico's first written submission, the Un ited States has in the past claimed the right to 
take unilateral action when anot her State impedes the operation of a treaty's dispute settlement 
mechanism. 
4.161  In the light of the United States' previously st ated position, let us consider what the United 
States would have done if it was Mexico that ha d vetoed the United States' attempt to have a 
legitimate NAFTA grievance resolved.  Would it have stood idly by if its most important agricultural 
sector experienced a crisis as a result of Mexico's re fusal to liberalize its import restrictions?  It does 
not seem likely.  Likewise, Mexico could not afford  not to respond to unilateral measures and simply 
let its agriculture suffer the consequences of United States restrictions. 
4.162  Mexico had to act to rebalance the situation, to return to the status quo ante . 
4.163  Article 3.7 of the Dispute Settlement Understa nding (DSU) stresses two key points:  "Before 
bringing a case, a Member shall exercise its j udgement as to whether action under these procedures 
would be fruitful ".  In addition, the "aim of the dispute settlement mechanism is  to secure a positive 
solution to a dispute ".  In Mexico's view, the United States' complaint clearly fails to meet both of 
these requirements.  It is obvious that by any objec tive standard, the United States' claim is aimed at 
forcing all of the adjustments in NAFTA sweeteners trade onto Mexico.  Now that the Panel is more 
fully informed of the history of this dispute, it can see for itself that by presenting a "slice" of the 
dispute to the WTO, it is evident that the United States has not exercised the judgement required by 
Article 3.7 of the DSU. 
4.164  Nor for that matter will this proceeding "secure  a positive solution to the dispute".  Mexico 
attaches the greatest importance to the WTO and to the DSU, but it would like to state, with the 
utmost respect that, whether or not the Panel de termines that the IEPS tax is inconsistent with 
Article III of GATT 1994 or is not covered by the Article XX exceptions, there will be no positive WT/DS308/R 
Page 36  
 
 solution to this dispute, and there cannot be one until all the issues of importance to both sides are 
comprehensively resolved. 
4.165  It is for that reason that Mexico urges the Pane l to decline to exercise jurisdiction since there 
is another forum available to both parties where the dispute can be heard in its entirety in light of all 
of the facts and all of the relevant legal right s and obligations.  Rather than seeking to avoid 
submission to the settlement of the complaint file d by the United States, Mexico is looking for the 
appropriate forum to resolve the existing disput e between the two countries in a comprehensive 
manner. 
4.166  Mexico also again invites the Panel to consider  its status as a developing country and, since 
the sugar industry is a key element of its rural ec onomy, to take into account the real economic and 
social consequences of this dispute for the Mexican rural sector. 
4.167  In this submission, Mexico will address four point s.  First, it will begin by demonstrating that 
the IEPS tax is part of, and inseparable from, a l ong-standing dispute arising under the NAFTA.  This 
is particularly important given that the United St ates' first written submission does not contain a single 
word in this regard. 
4.168  The United States has also ignored other crucial facts, including its own acts and omissions in 
the events that gave rise to the m easures at issue and the adverse impact of its restrictions on imports 
of Mexican sugar on a particularly sensitive sector of the Mexican economy.  The serious problems of the Mexican sugar industry are real and have been aggravated by the United States' unilateral decision 
to limit Mexico's ability to export sugar surpluses to its market. 
4.169  Mexico insists that the Panel must take these impor tant facts into consideration.  In the light 
of all the relevant facts, it is clear that Mexico  enacted the IEPS tax as an absolutely last resort. 
4.170  Second, Mexico will address the basis for its re quest that the Panel decline to exercise its 
jurisdiction.  Mexico recognizes that its request fo r a preliminary ruling is unusual, but submits that 
this Panel has the authority to accept it, and should do  so given the exceptional nature of this dispute. 
4.171  Third, Mexico will refer to its arguments to th e effect that, if the Panel decides to make 
findings on the merits of the dispute, it should find that the measures at issue are justified under 
Article XX(d) of the GATT 1994. 
4.172  Finally, Mexico will offer some brief preliminary remarks on certain issues raised by the 
European Communities in its third party submission. 
2. The origin of the IEPS tax and the importance for providing relief for the Mexican 
sugar industry  
4.173  Mexico describes the sugar industry's importance in paragraphs 15 to 26 of its first written 
submission, where Mexico also explains that the viability of the sugar industry constitutes a political 
and social imperative.  The Mexican industry is char acterized by certain structural problems which the 
government cannot ignore.  For example, sugarcane is grown on thousands of small plots and the 
farmers depend on the proximity of a sugar mill to sell their crop.  The sugar milling companies have 
typically encountered financial problems as a resu lt of the substantial debts incurred when they 
acquired the mills in Mexico's privatization process during the 1990s as well due to low sales margins.  This situation has forced the Mexican gov ernment to intervene in di fferent ways to prevent 
bankruptcies which would have had immediate adver se consequences for the sugarcane growers that 
supply the mills.  WT/DS308/R 
 Page 37 
 
 
 4.174  Simply put, it remains a great challenge for Mexi co to ensure the viability of the sugar milling 
companies and to promote a higher living standard for the sugarcane growers, one of the poorest 
sectors in the country.  For obvious reasons, the fina ncial situation of the sugar industry is a major 
concern for the Mexican government. 
4.175  Moreover, it is no secret that the world suga r industry is one of the most economically 
distorted and that government intervention is widesp read in this sector.  Governments frequently 
intervene to support the prices of agricultural producers (i.e. of the producers of sugarcane or sugar beet).  This automatically makes substitute produc ts, for example HFCS, more competitive in certain 
market segments. 
4.176  Countries that are net importers of swee teners can support domestic prices by, inter alia , 
limiting imports.  However, in the six years leading up to the imposition of the IEPS tax, Mexico was 
a net surplus producer:  the production of sugar exceeded its consumption. 
4.177  Low world market prices, the surplus on the Me xican market aggravated by the displacement 
of sugar by HFCS and the lack of access to the Un ited States market have made things difficult for the 
industry.  While the Mexican Government has made  great efforts to improve the situation, it has 
encountered considerable difficulties. 
4.178  In the recent final award made by the arbitr al panel established under NAFTA Chapter Eleven 
in GAMI Investments, Inc. v. The Go vernment of the United Mexican States
50 these facts were 
discussed.  The members of the tribunal were Jan  Paulsson, Michael Reisman, and Julio Lacarte 
Muró, whom the Panel will know for his long-standi ng and distinguished work in the GATT and the 
WTO, including his membership of the Appellate Body.  The award, dated 15 November 2004, 
contains findings of fact as to the very serious market conditions faced by the sugar mills from the 
mid-1990s through 2002. 
4.179  When the Panel reviews the award, it will see that  the tribunal accepted many of the facts that 
Mexico has asserted in its first written submission in this proceeding:  the special historical 
significance of sugar growing in Mexico, the la rge number of Mexican people who depend upon the 
industry, the distortions in the world market, Mexico's efforts to assist the industry in its distress, the 
lack of access to the United States market, and Mexi co's attempt to resolve the matter under NAFTA's 
general dispute settlement procedur es (see in this regard, paragraphs 45-52, 67, 77, and 78).  The 
Panel will also see that the tribunal found that Mexico 's rebalancing of market conditions dramatically 
improved its sugar industry's situation. 
4.180  There is no question that the fact that Mexico was prevented from exporting its surplus sugar 
to the United States exacerbated the serious problems that the Mexican sugar industry faced 
throughout the relevant period.  The Government of  Mexico could not ignore the substantial economic 
damage caused as a result of the United States' failure to open up its market as expected. 
4.181  In presenting its case, the United States also creates a false impression regarding the intent 
behind Mexico's measures.  It is important that the record be set straight.  To cite just a few examples: 
 – At the outset of its first written submission, the United States asserts that the Mexican 
sugar industry and its supporte rs in Congress wished to prevent the displacement of 
sugar by HFCS in its soft drink market a nd implies that they were motivated merely 
by a protectionist intent.  This gives th e impression that the Mexican government is 
against the use of HFCS under any circumst ances, which is simply incorrect.  The 
Mexican government's real and urgent concer n is not that substantial quantities of 
                                                      
50 Exhibit MEX-30. WT/DS308/R 
Page 38  
 
 HFCS might displace Mexican sugar from a traditionally important segment of the 
domestic sugar market;  rather it is that su ch a displacement would greatly contribute 
to the generation and growth of sugar surpluses in Mexico, as long as the United States maintained restrictions on those surp luses' entry into its market to protect its 
own industry, leaving the impact to be absorbed entirely by the Mexican sugar 
market.  It should not be forgotten that this was precisely the original concern of the 
United States after the signature of the NAFTA and that motivated its request for clarification through an exchange of lett ers between the two governments:  the United 
States' concern then was that HFCS imports from the United States would generate surpluses which, if exported to the United States, would unbalance its market.  The 
enactment of the measure at issue was inte nded to restore equilibrium. Regarding the 
United States' argument that the measure has a solely protectionist intent, Mexico will 
refer the Panel to the statement by the United States Department of Agriculture 
quoted in paragraph 61 of Mexico's first submission:  "… Basically, the Mexican 
sugar industry is not against United States HF CS imports into Mexico;  what they 
want is to gain access for more than the 25,000 MT of sugar currently allowed under 
the TRQ for Mexico.  With the high level s of imported HFCS and higher levels of 
sugar production, the sugar industry claims there is a danger of closing of 15 to 20 
mills, resulting in layoff of about 100,000 workers ."  These are the words of the 
United States, not Mexico. 
 
 – The United States also implies in its wr itten submission that Mexico's decision to 
impose the IEPS tax is permanent, motivated  by a firm desire to stop imports of 
HFCS and to terminate the use of HFCS in soft drinks and syrups.  This is not so.  Mexico's measure is a temporary response to the acts and omissions of the United States and, as Mexico has explained, the aim is to rebalance the situation between 
Mexico and the United States pending a comprehensive resolution. 
  – According to the United States, the purpose of the IEPS tax is simply to protect the 
Mexican sugar producers from import competition.  Again, this characterization is also inaccurate because it ignores the leg itimate objective behind the measure at 
issue.  The United States knows perfectly well why the Mexican Congress acted as it 
did. 
 4.182  Before turning to its legal arguments, Mexico urges the Panel not to lose sight of the great 
difficulties that Mexico faces in addressing the problems of its sugar industry because of the extraordinary circumstances resulting from the Unite d States' refusal to address Mexico's market 
access complaints under the NAFTA.  It would simply not be equitable to reward the United States 
for actions that undermine the NAFTA's dispute settlement process. 
3. Mexico's request for a preliminary ruling 
4.183  Mexico set out the legal basis for its request th at the Panel decline to exercise its jurisdiction 
in paragraphs 93 to 103 of its firs t written submission.  In this stat ement, it will emphasize a few key 
points. 
4.184  First, Mexico wishes to make clear that it do es not contest that the Panel has prima facie 
jurisdiction to examine the United States' claims under Ar ticle III of the GATT 1994.  However, the 
mere conclusion that the Panel has substantive ju risdiction to hear the case brought by the United 
States does not exhaust all issues relevant to  the Panel's competence in this dispute. 
4.185  The reason is that even though the substantiv e jurisdiction of any international court or 
tribunal may be granted explicitly by treaty, once su ch a forum has been seized of a specific matter, it  WT/DS308/R 
 Page 39 
 
 
 has certain implied jurisdictional powers that derive  from its nature as an adjudicative body.  Some 
elements of this incidental jurisdiction include the power to: 
 – Interpret the parties' submissions to "isola te the real issue in the case and to identify 
the object of the claim"51; 
 
 – determine whether it has substantive jurisd iction to settle a claim or any aspect of it 
(this is sometimes referred to as the prin ciple of jurisdiction over jurisdiction); 
  – decide all matters linked to the exercise of substantive jurisdiction that are inherent in 
the adjudicative function (i.e., decide cl aims under rules on the burden of proof, good 
faith, estoppel, due process, treatment of confidential information, etc.); 
  – apply the principle of "judicial economy", referred to by Mexico in its first written 
submission; 
 
 – and, crucially in this case, the power to decide whether it should refrain from 
exercising its validly established substantive jurisdiction. 
 4.186  A review of WTO jurisprudence also indicates th at WTO panels and the Appellate Body have 
implied or incidental jurisdictional powers.  For example, in US – 1916 Act , the Appellate Body 
explicitly confirmed that a WTO panel can determine whether it has substantive jurisdiction to decide 
a matter.  Specifically, the Appellate Body re ferred to the "widely accepted rule that an international 
tribunal  is entitled to consider the issue of its own ju risdiction on its own initiative, and to satisfy 
itself that it has jurisdiction in any case that comes before it".
52 
4.187  In other instances, WTO panels have relied on the implied juri sdiction to rule on matters 
inherent in the adjudicative function on which the DSU or other WTO covered agreements are silent.  
In US – Wool Shirts and Blouses , the Appellate Body found that "t he party who asserts a fact, whether 
the claimant or the respondent, is responsible for providing proof thereof" and the "burden of proof 
rests upon the party, whether complaining or defend ing, who asserts the affirmative of a particular 
claim or defence".53   The Appellate Body did so largely b ecause these rules have b een "generally and 
consistently accepted and applied" by " various international tribunals , including the International 
Court of Justice."54 
4.188  Mexico recognizes that there is no WTO precedent in which a panel has declined to exercise 
its jurisdiction over all of the claims made by a Me mber.  Mexico is not arguing that the Panel could 
decline to exercise its jurisdiction solely on the basis of the notion of "judicial economy", contrary to 
what is suggested in the EC's third party submission. 
4.189  In its first written submission, Mexico referred to the principle of "judicial economy" as an 
example of situations where WTO panels have  refrained from exercising validly established 
substantive jurisdiction over certain claims brought before them.  In Mexico's view, this example 
illustrates that in spite of the apparent requirement  of Article 7.2 of the DSU, which stipulates that 
"[p]anels shall address the relevant provisions in any covered agreement or agreements cited by the 
parties to the dispute", WTO panels can decide not to address certain claims.  In the light of this example and others already mentioned, there can be  no question that WTO panels have an implicit or 
inherent jurisdiction. 
                                                     
 
51 See Nuclear Tests ( Australia v. France;  New Zealand v. France ), 1974 ICJ Reports 253, page 262. 
52 Appellate Body Report on US – 1916 Act, para. 54 and footnote 30 (emphasis added). 
53 Appellate Body Report on US – Wool Shirts and Blouses , p. 14, DSR 1997:I,  323, at 335. 
54 Id. (emphasis added) WT/DS308/R 
Page 40  
 
 4.190  Mexico believes that such jurisdiction includes th e power to decline to exercise jurisdiction in 
the extraordinary circumstances of th is case since there is an availabl e forum for both parties to solve 
the dispute in a comprehensive manner.  Mexico's request is not simply that the Panel decline its 
jurisdiction, but that it decline it in favour of that forum. 
4.191  Mexico's request is compatible with the obj ective of the WTO dispute settlement mechanism 
to "secure a positive solution to a dispute". In th is case, the underlying difference is broader than 
submitted by the United States before the DSB. 
4.192  As a final point. Mexico wishes to make clear that it is not arguing that the Panel's power to 
refrain from exercising jurisdiction should be used liberally.  However, this case presents exceptional 
circumstances, that is to say, a broader dispute exists, as recognized by both parties, the United States 
and Mexico, but the United States has frustrated the Mexican right to have recourse to the appropriate 
dispute settlement mechanism in or der to resolve its grievance. 
4.193  In its submission, the European Communities pointed out that in the Argentina – Poultry Anti-
Dumping Duties  case a WTO panel considered the dispute d espite the fact that the same measures had 
previously been the subject of dispute settlement under Mercosur.  Nonetheless, in Mexico's view, 
Argentina – Poultry Anti-Dumping Duties , differs from this case in various relevant respects and 
cannot be used as a precedent. 
4.194  In Mexico's opinion, it would be not appropriate  under the circumstances of this case for the 
Panel to exercise its substantive jurisdiction. 
4. Mexico's defence under Article XX(d) of the GATT 1994 
4.195  Should the Panel decide to exercise its jurisd iction and find that the measures at issue are 
inconsistent with Article III:4 of the GATT 1994, Mexico believes that it should find them justified 
under Article XX(d).  In paragraphs 115 to 138 of its first written submission, Mexico explains that 
the measures at issue meet all the requirements of Article XX(d). 
4.196  Mexico will respond to the United States' argu ments concerning Article XX(d) in its second 
written submission.  At this point, Mexico woul d simply like to make a couple of observations. 
4.197  In paragraph 38 of its submission, the European Communities points out that the reference to 
"laws or regulations" must be to laws or regulations  applicable in the internal legal order of the WTO 
Member in question. The European Communitie s does not cite any previous GATT or WTO 
jurisprudence in support of its contention.  Indeed , it could not do so because the unusual facts of this 
case have not previously been addressed in GATT or WTO dispute settlement proceedings. 
4.198  While it is true that Article XX(d) contains an  illustrative list of laws, compliance with which 
could give rise to measures otherwise inconsistent  with the GATT, the list is illustrative and not 
exhaustive and it cannot be concluded that it excl udes international treaties.  Neither can it be 
concluded that GATT negotiators had the intention of excluding international treaties.  There is no 
reason in principle why the term "laws" should exclude international treaties. 
4.199  Paragraph (d) of Article XX does not refer to measures "necessary to secure compliance with 
internal laws or regulations" or  "[measures] necessary to secure compliance with laws or regulations 
of a Member's internal legal order " as suggested by the reading propo sed by the EC.  The Panel will  WT/DS308/R 
 Page 41 
 
 
 observe that the rules of treaty interpretation "neith er require nor condone the imputation into a treaty 
of words that are not there".55 
4.200  Nothing in the text of the article compels the restrictive interpretation urged by the European 
Communities.  In light of the rapid development of  international law and treaty-making in the last 
decade, why in principle should in ternational treaties be excluded? 
4.201  Mexico has done no more than try to induce the United States to comply with its NAFTA 
obligations and to submit to dispute settlement under the NAFTA.  The reco rd demonstrates that 
Mexico has at all times sought to resolve the dispute through consultation, negotiation, and dispute settlement mechanisms.  Nonetheless, there comes a ti me when it must be recognized that all avenues 
for international cooperation have b een exhausted and a State may then resort to its own devices.  It 
was not until all other means had failed that Mexi co took the measures to which objection has now 
been made.  Mexico, nevertheless, has not cl osed the door against finding a solution through 
cooperation, and even since adopting the measur e, it has continued with consultations and 
negotiations, although these have failed to yield results. 
4.202  As a matter of policy, if Mexico's defence we re accepted, there would be no risk of trade 
restrictive measures that were not tied to bona fide  efforts to resolve disputes being successfully 
justified under Article XX(d). 
5. Response to the European Communities' third party submission 
4.203  Mexico has read the European Communities' third party submission with interest.  Mexico 
has already addressed various specific points made by the European Communities, and it would now 
like to turn to certain other remarks made in  that submission with which Mexico agrees: 
 – In paragraph 20, the European Communities points out that the function of the Panel 
is to make findings in the light of the provi sions of the covered agreements.  It then 
states that this does not mean that the Panel cannot take into account other provisions of international law, when such provisions ar e relevant to the dispute before it.  It 
points out that the Appellate Body has confirmed that the WTO Agreements are not 
to be read in "clinical isolation" from public international law.  The European 
Communities expresses its view that it is ther efore not excluded that applicable rules 
of international law may also include b ilateral or multilateral agreements between 
Members, when such rules are relevant  for settling a dispute before a panel. 
  Mexico agrees with the European Co mmunities' submission in this regard. 
 
 – At paragraph 21, the European Comm unities notes that "Mexico has so far not 
invoked any specific provision of NAFTA or ge neral rules of public international law 
in its defence against the claims of the United States" and that the Panel "may therefore not need to address the comple x question of the relationship between the 
WTO agreements and other bilate ral or multilateral agreements". 
  This observation is correct.   – Mexico should point out, however, that it considers that not only must the WTO 
agreements be interpreted in accordance w ith the rules of customary international 
law, but that these rules, in general, con tinue to operate within the context of the 
WTO and other obligations under Members' re gional trade agreements.  When, due to 
                                                     
 
55 Report of the Appellate Body on  India – Patents (US) , para. 45. WT/DS308/R 
Page 42  
 
 a State's conduct, the dispute settlement me chanisms of such agreements fail to 
operate as foreseen, the affected State must be allowed to take action under 
customary international law. 
  However, there are three reasons why Mexico  has so far not referred to such rights: 
 
4.204  The first reason is that Mexico considers that its measure is justifie d under Article XX(d) of 
GATT 1994.  
4.205  Secondly, Mexico also wishes to see the United States' response to its first submission.  In 
particular, Mexico would like to know whether th e United States continues to adhere to the view 
expressed in the quotation in paragraph 1 26 of Mexico's first written submission: 
"Wherever it could the United States would challenge unfair practices under the 
dispute settlement provisions of the Genera l Agreement or the Tokyo Round Codes, 
but where other contracting parties prevented or impeded that process or blocked efforts to ensure that their practices we re covered by multilateral disciplines, the 
United States would act to protect its inter ests.  If such an action was considered 
unilateral it should be nevertheless recogni zed as perfectly justifiable, responsive 
action necessitated by the failure of bila teral or multilateral efforts to address a 
problem."
56 
4.206  Mexico's third concern about invoking its right s at general international law in this WTO 
proceeding is that this Panel does not have before it all the facts and relevant legal issues.  Mexico 
recognizes that a WTO panel has jurisdiction only over  the covered agreements;  that it cannot take 
jurisdiction over issues raised under the NAFTA.  In such circumstances, given the prospect of 
parallel international proceedings in  which substantial monetary dama ges are being claimed against it, 
Mexico cannot, without having all the relevant facts and obligations before it, run the risk of its 
defence under international law being prejudiced in these other proceedings. 
4.207  The Panel has only been presented with a "slice" of the dispute, that "slice" which the United 
States considers might be to its advantage to present;   this is why Mexico has lodged its preliminary 
jurisdictional objection. 
4.208  Mexico wishes to draw the attention of the Pa nel to one important point in this regard:  
assuming arguendo  that the United States demonstrated that th e tax at issue violated Article III of the 
GATT, there is a real prospect that another intern ational tribunal might reach a contrary finding with 
regard to the identical provision incorporated in NAFTA Article 301.  Mexico  believes that the United 
States and the Panel should ponder how possible conf licting decisions on Article III could "secure a 
positive solution" to the dispute. 
4.209  However, Mexico believes that its measures are, in any event,  justified under international 
law. 
6. Conclusions 
4.210  For the reasons set out in Mexico's first writte n submission and those which it has put forward 
in this occasion, Mexico requests the Panel to declin e to exercise its jurisdiction in these proceedings.  
Should the Panel decide to reject Mexico's request for a preliminary ruling, Mexico requests that the 
Panel find that Mexico's measures are jus tified under Article XX(d) of the GATT 1994. 
                                                      
56 GATT document C/163 of 16 March 1989, page 4. Exhibit MEX-29.  WT/DS308/R 
 Page 43 
 
 
 F. CLOSING STATEMENT OF THE UNITED STATES AT THE FIRST MEETING OF THE PANEL  
4.211  As discussed in some detail, the United States ha s established a prima facie case that Mexico's 
tax on HFCS and soft drinks and syrups sweetened  with HFCS is inconsistent with Mexico's 
obligations under Articles III:2 and III:4 of th e GATT 1994.  In the opening session, Mexico 
confirmed for the Panel that it has not rebutted that  case, and does not intend to rebut that case in the 
context of these proceedings.  While the Panel must itself confirm that the legal requirements for a 
breach of Article III exist, the United States is conf ident that the prima facie case established in its 
written submission and confirmed by its remarks in the opening session will enable the Panel to do 
that. 
4.212  This is in stark contrast to the two bases on wh ich Mexico has decided to defend its breach of 
Article III:  its request for the Panel to decline juri sdiction and its Article XX(d) defence.  Mexico has 
not met its burden of proof with respect to either  of these bases.  Rather than reiterate the points 
discussed in this regard in its opening statement, the United States will focus its closing remarks on a 
couple of admissions made or clarified by Mexi co's oral statement and responses to questions. 
4.213  First, with regard to Mexico's request for the Panel to decline jurisdiction over this dispute, 
Mexico admits that its request finds no basis in  the text of the DSU or elsewhere in the WTO 
Agreement.  Instead, Mexico asserts that some undefi ned principle of international law which "is not 
written down" overrides the explicit text of the DSU and the Panel's terms of reference.  This is 
simply not credible. 
4.214  Second, with respect to Article XX(d), Mexico admi ts that it is not aware of any past panel or 
Appellate Body report nor any statements in th e negotiating history to support its novel contention 
that the words "laws or regulations" as used in Article XX(d) actually mean – as was framed in the 
opening session by the Chairman of the Panel – "another Member's oblig ations under a non-WTO 
agreement."  This is in addition to the fact that Me xico is unable to point to any textual basis in the 
GATT or elsewhere in the WTO Agreement to suppor t its contention.  However, because Mexico as 
the party asserting this defence bears the burden of prov ing it, it is up to Mexico to come forward with 
the factual evidence and legal arguments in support of  its claim.  Such legal and factual support must 
arise from something more than the mere absence of a prior WTO finding or any negotiating history 
on the subject. 
4.215  Having not established that another Member's obligations under an international agreement 
are "laws or regulations" under Artic le XX(d), the Panel need not reac h the issue of whether Mexico's 
tax "secures compliance" or is "necessary."  Neverthe less, the United States would point out Mexico's 
rather flexible use of the word " secure" in its responses to questions posed by the Panel in the opening 
session.  Mexico repeatedly referred to the tax as aimed at "inducing" United States compliance with 
its alleged NAFTA obligations.  This  suggests to the United States that Mexico also implicitly admits 
that its tax cannot in fact secure United States co mpliance with alleged NAFTA obligations; the most 
that it can hope is that its tax encourages Un ited States compliance with those obligations by 
punishing the United States with a breach of the obl igations Mexico owes the United States under the 
GATT. 
4.216  In this connection, the United States also notes Mexico's candid response to the question 
posed by the United States as to whether Mexico's  tax applies to imports of HFCS from just the 
United States or from other WTO Members as well.  In that response, Mexico confirmed that the tax 
applies to HFCS imports from any WTO Member.  The United States finds it difficult that Mexico's 
tax could be necessary to secure United States comp liance with the NAFTA when the tax penalizes 
not just HFCS of United States origin, but HFCS from all other WTO Members. WT/DS308/R 
Page 44  
 
 4.217  Much more could be said about Mexico's incorre ct claims with respect  to its Article XX(d) 
defence as well as its request for the Panel to decline ju risdiction. However, in the interest of brevity,  
the United States will defer those points to its second submission. 
4.218  Before closing, however, the United States would like to comment more broadly on the 
sweetener dispute with respect to the provisions of the NAFTA.  The United States has made clear its 
view that that other matter is not relevant to this cu rrent proceeding.  It is the United States' firm view 
that it has been acting in full conformity with its obligations regarding sugar under the NAFTA.  It has 
a dispute with Mexico over the precise terms of t hose NAFTA obligations.  Mexico has described its 
efforts to resolve that other matter and its frustra tion over the fact that, that issue has not been 
resolved to date.  The Panel should understand that the United States is equally dedicated to resolving 
that other matter and shares Mexico's disappointment that it has not been able to reach a mutually 
satisfactory resolution.  As Mexico noted in its  opening statement, dialogue  and negotiations on the 
NAFTA issue have continued, most recently among sweetener producers in both countries.  The United States is before the WTO to resolve a WT O dispute over HFCS, but it has no less interest in 
resolving the NAFTA sugar issue in the appropriate forum. 
4.219  Mexico has presented the Panel with a narrative th at describes some of the complexities in the 
sugar case.  There are many more that could be presented and that would uphold the United States 
view of the matter.  The point is that this is not  the place where that issue can be resolved.  This 
dispute is about Mexico's commitments to WTO Members under the covered agreements, and Mexico 
has pointed to nothing in the text of those cove red agreements that bars the United States from 
recourse under WTO dispute settlement. 
G. C
LOSING STATEMENT OF MEXICO AT THE FIRST MEETING OF THE PANEL  
4.220  Mexico would like to confine itself to the following subjects: 
4.221  Firstly, on the subject of judicial economy, Mexi co referred in detail in its opening statement 
to the basis for its request that the Panel decline to exercise its ju risdiction, and explained why the 
Panel is entitled to do so.  Unfortunately, the th ird parties presented their arguments during their 
session with the Panel without having had the benefit of  Mexico's arguments in that respect.  Mexico 
would therefore simply like to repeat that it is not asking the Panel to decline its jurisdiction for 
reasons of judicial economy.  This is merely an ex ample of the implied or incidental jurisdiction that 
the Panel has.  Mexico would like to refer the Pa nel to the arguments on the subject presented in 
Mexico's opening statement. 
4.222  Secondly, Mexico would like to refer to the issue of whether or not Article XX(d) of the 
GATT 1994 excludes international treaties.  In this connection, Mexico would like to refer the Panel 
to the argument made by the Government of Gu atemala in the third party session concerning the 
importance of regional trade agreements in the c ontext of the multilateral trading system, and the 
fundamental role played by the dispute settlement  mechanisms provided for under those agreements, 
especially as regards the legal certainty that they bring to the multilateral trading system. 
4.223  The United States confirmed that there was a disagreement between the two parties, Mexico 
and the United States, regarding trade in sugar in the framework of the North American Free Trade 
Agreement (NAFTA).  The United States confirme d the validity of Mexico's request for the 
establishment of a NAFTA Chapter XX Arbitral Pa nel, and confirmed that the dispute was still 
pending – in spite of the fact that the United States Government, more specifically the Office of the 
United States Trade Representative, removed it fro m its official website, oddly enough just before 
bringing this dispute before the WTO.  The United States also stated that it was unfortunate that to 
date, more than four years after Mexico requested th e establishment of an arbitral panel and more than 
six years after the NAFTA Chapter XX Dispute Settlement Mechanism was activated, it had not been  WT/DS308/R 
 Page 45 
 
 
 possible to settle the dispute either through cons ultations and negotiations  or through the dispute 
settlement mechanism.  This is because the United States has thus far blocked Mexico's request to 
establish an arbitral panel.  To date, the NAFTA arbitral panel has not been composed because the 
United States has not appointed panellists, nor has it agreed on the appointment of a chairperson. 
4.224  The United States contends that the Government  acted in full conformity with the NAFTA 
provisions.  Mexico would simply like to point out th at this is no more than an affirmation by the 
legal representative of the United States, but that the only evidence pertaining to this issue in the 
record is the evidence that Mexico supplied.  Th e only evidence of the in effectiveness of the NAFTA 
dispute settlement mechanism, due to the United States ' intransigence in refusi ng to appoint panellists, 
is the evidence provided by Mexico.  Indeed, not on ly did the United States fail to supply evidence to 
refute Mexico's arguments in this respect, but it di d not even deny the evidence during the meeting.  
Mexico responded to the United States' statement (i n reply to a question from the Panel) that a 
NAFTA Chapter XX arbitral panel had been established,  and to its attempt to convince the Panel that 
the proceeding was under way.  Mexico rejects the United States' assertion, pointing to a technical 
difference between  establishing an arbitral panel a nd composing that panel. It is an unquestionable 
fact that today, more than four years after Me xico's request, the United States has not appointed 
panellists and that there is no arbitral pa nel that can settle Mexico's grievances. 
4.225  Mexico has met the burden of proof which, in the circumstances, satisfies all of the 
requirements of Article XX(d) of the GATT 1994.  It has supplied both the legal elements and the 
evidence relating to the Un ited States' measures. 
H. SECOND WRITTEN SUBMISSION OF THE UNITED STATES  
1. Introduction 
4.226  In its first submission, the United States established a prima facie case that Mexico's tax 
measures on HFCS and soft drinks and syrups sweetened with HFCS are inconsistent with 
Articles III:2 and III:4 of the GATT 1994.  Mexico has not rebutted that case and instead has attempted to change the subject by asserting that the United States is in breach of its obligations under 
the NAFTA and that this alleged breach justifies a request for the Panel to refuse to address the 
Article III claims or, in the alternative, that this  alleged breach justifies Mexico's tax measure under 
Article XX(d) of the GATT 1994.  The Panel has alread y rejected Mexico's request for it to decline to 
address the United States Article III claims and the United States respectfully requests it to reject 
likewise Mexico's Article XX(d) defence. 
4.227  Mexico cannot, and does not, rely on the text  of the GATT to support its Article XX(d) 
defence.  All Mexico is able to offer in support of its contentions that Ar ticle XX(d) covers another 
Member's obligations under an international agreemen t is that neither a panel nor the Appellate Body 
has ever rejected these specific contentions and that unspecified "principles of international law" exist 
which override the ordinary meaning of the text of  the WTO Agreement.  There is no basis for this 
argument, which is wholly contrary to the custom ary principles of treaty interpretation applicable 
under Article 3.2 of the DSU. 
4.228  United States obligations under the NAFTA are simp ly not an issue this Panel need ever reach 
to resolve the matter before it; there is no basis for the Panel to conclude that "laws or regulations" 
encompass another Member's obligations under an in ternational agreement.  This conclusion can, and 
should, be reached without ever considering th e meaning of various NAFTA provisions or the 
obligations allegedly owed Mexico by the United States under the NAFTA. 
4.229  Mexico's approach to this dispute has had the effect of narrowing the issues before the Panel 
to (1) confirming that the United States has establishe d a prima facie case that Mexico's tax measures WT/DS308/R 
Page 46  
 
 are inconsistent with Articles III:2 and III:4 of  the GATT 1994 and (2) examining the merits of 
Mexico's contention that its tax measures ar e justified under Article XX(d) of the GATT 1994. 
2. Mexico's tax measures are inconsistent with Article III of the GATT 1994 
(a) Burden of proof 
4.230  Mexico has indicated that the Panel should c onstrue its non-response to the United States 
claims to mean that, once the Panel has satisfied itself that the United States has met its burden to 
establish a prima facie case under Article III, Mexico  does not object to the Panel proceeding on the 
presumption that its tax measures are incompatible  with Article III.  The United States does not 
disagree with this approach. 
4.231   Confirmation that the United States has established a prima facie case of inconsistency in this 
dispute should not be an arduous task.  The Unite d States evidence is uncontested and in some 
instances is confirmed by Mexico. 
4.232  The Panel may find it useful to draw upon the panels' approach in US – Shrimp  and Turkey – 
Textiles , where the panels undertook a brief analysis c onfirming that the complaining party had made 
its prima facie case and then proceeded to exam ine the defending party's affirmative defence.  
Proceeding on the same basis in this dispute, the Panel should find the United States has met its 
burden of proof and that Mexico's tax measures ar e in breach of its obligations under Articles III:2 
and III:4 of the GATT 1994. 
(b) Mexico's tax measures are inconsistent  with Article III of the GATT 1994 
4.233  As reviewed in the United States first submis sion, Mexico applies a 20 per cent tax on the 
internal transfer and importation of soft drinks a nd syrups ("HFCS soft drink tax") and a 20 per cent 
tax on the representation, brokerage, agency, consignm ent and distribution of soft drinks and syrups 
("distribution tax").  Mexico further subjects the intern al transfer of soft drinks and syrups to certain 
bookkeeping and reporting requirements ("reporting requirements").  Mexico exempts from these 
taxes and reporting requirements transfers of soft drinks and syrups sweetened exclusively with cane 
sugar.  Thus, Mexico applies a 20 per cent tax on th e importation of soft drinks and syrups (regardless 
of sweetener) and a 20 per cent tax on the internal transfer, as well as on the representation, 
brokerage, agency, consignment and distribution, of  soft drinks and syrups sweetened with any 
sweetener other than cane sugar.  Internal transfer s of soft drinks and syrups sweetened with any 
sweetener other than cane sugar are further subject to the reporting requirements. 
4.234  For the reasons outlined at greater length in pr evious submissions, Mexico's tax measures are 
inconsistent with Article III of the GATT 1994.  Fi rst, Mexico's HFCS soft drink and distribution 
taxes are inconsistent with Article III:2 as a discriminatory tax on imported, non cane sugar 
sweeteners for use in soft drinks and syrups.  These non cane sugar sweeteners include HFCS, as 
highlighted in the United States first submission, as well as beet sugar as addressed in more detail 
below.  The HFCS soft drink and distribution tax es are inconsistent with both the first and second 
sentences of Article III:2.  That said, the United States has focused its arguments under Article III:2 
with respect to HFCS on the second sentence.  As detailed below, the United States has focused its 
arguments regarding beet sugar on the first sentence of Article III:2.  
4.235  Second, Mexico's HFCS soft drink and distributi on taxes are inconsistent with Article III:2 of 
the GATT 1994 as discriminatory taxes on imported soft drinks and syrups.  When collected "at the 
time or point of importation," Mexico's HFCS soft drink tax discriminates on its face against imports, as only domestic transfers of soft drinks and syrups  are subject to the cane sugar-only exemption.  
When collected on subsequent internal transfers of  imported soft drinks a nd syrups, Mexico's HFCS  WT/DS308/R 
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 soft drink and distribution taxes discriminate de facto  against imported soft drinks and syrups made 
with non-cane sugar sweeteners including HFCS and beet sugar. 
4.236  Third, Mexico's HFCS soft drink and distributi on taxes are inconsistent with Article III:4 of 
the GATT 1994 as a law affecting the internal sale and use of non cane sugar sweeteners including 
HFCS and beet sugar. As discussed in the Unite d States responses to questions, to the extent a 
measure that discriminates against imported product takes the form of dissimilar taxation affecting the 
internal sale, offering for sale, purchase, transportation, distribution or use of the imported product, that measure may breach both Articles III:2 and III:4 of the GATT 1994.  This is the case with the 
HFCS soft drink and distribution taxes as applied to non-cane sugar sweeteners. 
4.237  Fourth, Mexico's reporting requirements are inc onsistent with Article III:4 of the GATT 1994 
as requirements affecting the internal sale and use of non cane sugar sweeteners including HFCS and 
beet sugar. 
(i) Mexico's tax measures on non-cane sugar sweetener s are inconsistent with Article III:2 of the 
GATT 1994 
The United States has established a prima facie case  that the HFCS soft drink and distribution 
taxes are inconsistent with Article III:2, second sentence  
4.238  The United States has met its prima facie burden of establishing that Mexico's HFCS soft 
drink tax is inconsistent with the second sentence of Article III:2.  Mexico's distribution tax is also 
inconsistent with the second sentence of Article  III:2 of the GATT 1994.  The distribution tax 
discriminates against HFCS for use in soft drinks  and syrups in the same manner as the HFCS soft 
drink tax. 
4.239  Mexico has confirmed that HFCS and cane s ugar compete and are substitutes as sweeteners 
for soft drinks and syrups.  Mexico has also confirmed that it imposed the taxes to stop the 
displacement of Mexican cane sugar by imported HFCS  as a sweetener for soft drinks and syrups.  
With respect to this latter admission and despite Mexi co's claim to the contrary, it is not possible to 
reach any other conclusion than a measure designe d to stop the displacement of domestic production 
by imported products is a measure to protect domest ic production.  Because Mexico has not rebutted 
the United States prima facie case, the United States r espectfully requests that th e Panel find that the 
HFCS soft drink and distribution taxes as applied to  HFCS for use in soft drinks and syrups are 
inconsistent with Mexico's ob ligations under the second sentence of Article III:2 of the GATT 1994. 
The HFCS soft drink and distribution taxes are inconsistent with Article III:2, first sentence,  
with respect to beet sugar  
4.240  Although the focus of United States argumentation in this dispute has been the discrimination 
Mexico's tax measures impose on HFCS, and this rema ins the principal concern of the United States, 
Mexico's HFCS soft drink and distribution taxes di scriminate against all non-can e sugar sweeteners as 
sweeteners for soft drinks and syrups.  These non-ca ne sugar sweeteners in clude not only HFCS but 
also beet sugar. 
4.241  Beet and cane sugar are "like" products.  In its first submission, the United States explained 
that in their refined form (the form required to  produce soft drinks and syrups) beet sugar is 
"chemically and functionally identical" to cane sugar.  Beet and cane sugar are both "a form of sucrose" with the same molecular structure.  In  fact, cane and beet sugar are equally 99.95 per cent 
sucrose with the remaining 0.05 per cent consisting of trace minerals and pr oteins. Cane and beet 
sugar may be used for identical purposes, includi ng as a sweetener for soft drinks and syrups.  
Because they are virtually identical with respect  to physical properties and end-uses, they are WT/DS308/R 
Page 48  
 
 distributed in the same manner and consumers (in th is case, soft drink and syrup producers) use them 
interchangeably.  For example, as the EC mentioned in  its third party statement to the Panel, European 
soft drink producers sweeten their products with b eet sugar.  Beet and cane sugar are equally 
classified under HS heading 1701.  Although "like" products need not  be identical products, cane and 
beet sugar are nearly that.  Beet sugar is, thus, "like" cane sugar within the meaning of the first 
sentence of Article III:2. 
4.242  As was demonstrated for HFCS in the United Stat es first submission, the incidence of the tax 
on beet sugar used as a sweetener for soft drinks a nd syrups is much greater than the nominal 20 per 
cent tax on non-cane sugar sweetened soft drinks and syrups.  With respect to beet sugar, the HFCS 
soft drink and distributions taxes amount to nearly  a 400 per cent tax on the use of beet sugar.  A 
nearly 400 per cent tax that is not applied to th e like domestic product is clearly a tax in "excess of" 
within the meaning of GATT Article III:2, first sentence. 
4.243  The application of the HFCS soft drink and distribution taxes to beet sugar – a nearly 
identical product – highlights the truly protectionist purpose of Mexico's tax measures.  In providing a 
tax exemption for soft drinks and syrups sweetened only with cane sugar, which is almost exclusively 
a domestic product in Mexico, but not for soft drinks and syrups sweetened with the nearly identical 
sweetener, beet sugar, which is exclusively an im ported product, Mexico designed its tax measures to 
protect domestic production. 
4.244  Because beet and cane sugar are "like" products but only beet sugar when used as a sweetener 
for soft drinks and syrups is subject to taxation, the HFCS soft drink and distribution taxes are inconsistent with the first sentence of Article III:2 of the GATT 1994 as taxes applied on imports in 
excess of those applied to like domestic products .  Accordingly, the United States respectfully 
requests that the Panel find the HFCS soft drink and distribution taxes inconsis tent with Article III:2. 
(ii) Mexico's tax measures on soft drinks and syrups are inconsistent with Article III:2 of the 
GATT 1994 
The United States has established a prima facie case  that the HFCS soft drink and distribution 
taxes with respect to soft drinks and syrups ar e inconsistent with Article III:2, first sentence  
4.245  The United States has also established a prima f acie case that Mexico's HFCS soft drink and 
distribution taxes are inconsistent with the first sen tence, or in the alterna tive, the second sentence of 
Article III:2 of the GATT 1994 with respect to soft  drinks and syrups sweetened with HFCS.  The 
United States has demonstrated that soft drinks and syrups sweetened with HFCS are "like" (or, with 
respect to the second sentence clai m, "directly competitive or substitu table" with) soft drinks and 
syrups sweetened with Mexican cane sugar.  Th e United States has also demonstrated that by 
providing an exemption from the HFCS soft drink and distribution taxes only for the internal transfer 
of soft drinks and syrups sweetened exclusively with cane sugar, Mexico applies a tax to imported 
soft drinks and syrups – which are nearly all sw eetened with non-cane sugar sweeteners – in "excess 
of" that applied to the like domestic product.  Based on these demonstrations, the United States has 
established a prima facie case that Mexico's HFCS so ft drink and distribution taxes are inconsistent 
with the first sentence of Article III:2. 
4.246  The United States has further demonstrated that Mexico's taxation of soft drinks and syrups 
made with non-cane sugar sweeteners is applied so as to afford protection to Mexican production of 
soft drinks and syrups, which even before im position of Mexico's tax measures were largely 
sweetened with cane sugar.  Therefore, the Unite d States has also established a prima facie case of 
inconsistency with the second sentence of Article III: 2 with respect to imported soft drinks and 
syrups.  Mexico has not rebutted this case nor the case w ith respect to soft drinks and syrups under the 
first sentence of Article III:2.  Accordingly, on the basis of th e United States prima facie case, the  WT/DS308/R 
 Page 49 
 
 
 United States respectfully requests that the Panel find  the HFCS soft drink and distribution taxes with 
respect to soft drinks and syrups are inconsistent with the first sentence, or  in the alternative, the 
second sentence, of Article III:2 of the GATT 1994. 
The HFCS soft drink and distribution taxes are inconsistent with Article III:2, first sentence,  
with respect to soft drinks and syrups sweetened with beet sugar  
4.247  Mexico's soft drink and distribution taxes di scriminate against all non-cane sugar-sweetened 
soft drinks and syrups.  These non-cane sugar-sweetened  soft drinks and syrups include not only soft 
drinks and syrups sweetened with HFCS, but  also those sweetened with beet sugar. 
4.248  The discrimination against soft drinks and syrups  sweetened with beet sugar, coupled with the 
fact that these soft drinks and syrups are "like"  those sweetened with cane sugar, renders the HFCS 
soft drink and distribution taxes inconsistent with the first sentence of Article III:2 of the GATT 1994 
with respect to beet sugar-sweetened soft drinks a nd syrups, just as it does for soft drinks and syrups 
sweetened with HFCS. 
4.249  As noted above, the United States explained in its first submission that beet and cane sugar 
are "chemically and functionally identical" and may be used interchangeably as a sweetener for soft 
drinks and syrups.  As beet and cane sugar are virtua lly identical, it follows that soft drinks and syrups 
sweetened with them are as well and, therefore, that  soft drinks and syrups sweetened with beet sugar 
are "like" those sweetened with cane sugar. 
4.250  In addition, soft drinks and syrups sweetened with  beet sugar are "like" soft drinks and syrups 
sweetened with cane suga r because they share the same physical properties, end-uses, consumer 
preferences and tariff classification.  Specifically, each  of the physical characteristics described in the 
United States first submission with respect to HFCS - and cane sugar-sweetened soft drinks and syrups 
equally apply with respect to soft drinks and syru ps sweetened with beet sugar.  With respect to 
chemical composition, as stated above, cane and b eet sugar are 99.95 per cent the same chemical 
compound.  The identity of the chemical make-up of  soft drinks and syrups sweetened with cane 
versus beet sugar is, therefore, even greater.  To be exact, that would make beet sugar- and cane 
sugar-sweetened soft drinks 99.99 per cent identical .  Moreover, as noted in the United States first 
submission, the ingredient label on a can of soda  reads the same (both in Mexico and the United 
States, as well as in Europe) regardless of whethe r it is sweetened with HFCS, beet sugar or cane 
sugar. 
4.251  Furthermore, although in the United States most regular soft drinks and syrups are sweetened 
with HFCS and in Mexico with cane sugar, in the EC (as the EC mentioned in its third party 
submission and statement to the Panel) soft drinks and syrups are sweetened with beet sugar.  There is 
no indication that consumers in Europe use soft dri nks and syrups sweetened with beet sugar for end-
uses that in any way differ from the end-uses for soft drinks and syrups in the United States or 
Mexico.  As discussed in the United States first submission, Coca-Cola, the world largest soft drink producer attests that "[b]ecause th ere is no noticeable taste difference, bottlers have the option of 
using either high fructose corn syrup (HFCS), beet sugar or cane sugar, depending on availability and 
cost."  Also as discussed in the United States first submission, United States soft drink and syrup 
producers generically refer to the sweetener compone nt as "sugar", not cane or beet sugar or HFCS.  
With respect to tariff classification, there is no separ ate classification for soft drinks and syrups based 
on the type of sweetener used, as Mexico confir med in its responses to the Panel's questions. 
4.252  Although soft drinks and syrups sweetened with beet sugar are "like" soft drinks and syrups 
sweetened with cane sugar, only the former is subject to a 20 per cent tax on its importation and 
internal transfer (the HFCS soft drink tax) as well as on its distribution, representation, brokerage, 
agency, and consignment (the distribution tax).  As explained in the United States first submission, as WT/DS308/R 
Page 50  
 
 well as above, in Mexico soft drinks and syrups are largely sweetened with cane sugar.  This was true 
even before imposition of Mexico's discriminatory ta xes.  Soft drinks and syrups produced in the 
United States and elsewhere, however, are sweetened  largely with non-cane sugar sweeteners.  A 20 
per cent tax applied to beet sugar-sweetened soft dri nks and syrups that is not applied to "like" cane 
sugar-sweetened soft drinks is, therefore, a tax applied on imports from the United States and 
elsewhere "in excess of" that applied to the like domestic product. 
4.253  Because beet- and cane sugar-sweetened soft dr inks and syrups are "like" products, but only 
beet sugar-sweetened soft drinks and syrups ar e subject to taxation, the HFCS soft drink and 
distribution taxes are also inconsistent with th e first sentence of Article III:2 of the GATT 1994 as 
taxes applied on imported beet sugar-sweetened soft drinks and syrups in excess of those applied to 
like domestic soft drinks and syrups sweetened with cane sugar. 
4.254  The United States notes that, in its responses to the Panel's questions, Mexico raised for the 
first time that, due to an amendment made to th e IEPS during the Panel pro ceedings effective January 
1, 2005, the HFCS soft drink tax allows the same  tax exemption for importations of cane sugar-only 
soft drinks and syrups as it does for their internal transfer.  This fact, however, should not change the 
Panel's analysis in this dispute.  The 1 January 2 005 amendment to the HFCS soft drink tax is outside 
the Panel's terms of reference.  The Panel should, therefore, not take into account the 1 January 2005 
amendment to the IEPS in evaluating the United States claims that Mexico's tax measures as 
described in its request for a panel are inconsistent  with Mexico's obligations under Article III of the 
GATT 1994. 
4.255  In any event, the amendm ent does not change the de facto  discrimination that exists with 
respect to the internal transfer and distribution of imported soft drinks and syrups sweetened with non-
cane sugar sweeteners.  The 1 January 2005 amendmen t only affects importations of soft drinks and 
syrups and, therefore, does not change the de facto  discrimination that exists with respect to the 
internal transfer and distribution of imported soft  drinks and syrups sweetened with non-cane sugar 
sweeteners. 
The United States has established a prima facie ca se that Mexico's tax measures affecting the 
use of HFCS are inconsistent with Article III:4 of the GATT 1994  
4.256  In addition to being inconsistent with Article  III:2, first and second sentences, of the GATT 
1994, the United States has also established a prima facie case that Mexico's tax measures (HFCS soft 
drink tax, distribution tax and re porting requirements) are inconsistent with Article III:4 as measures 
affecting the use of HFCS as a sweetener for soft drinks and syrups.  Mexico has not rebutted this 
case.  Therefore, on the basis of the United Stat es prima facie case, the United States respectfully 
requests the Panel to find the HFCS soft drink an d distribution taxes and reporting requirements on 
HFCS for soft drink and syrup use to be inc onsistent with Article III:4 of the GATT 1994. 
4.257  Mexico's HFCS soft drink and distributi on taxes and reporting requirements are also 
inconsistent with Article III:4 of the GATT 1994 as a pplied to beet sugar.  As stated above, cane and 
beet sugar are "like" products within the meaning of  the first sentence of Arti cle III:2.  Indeed, beet 
and cane sugar are nearly identical products.  Furt her, the discrimination imposed on beet sugar by 
Mexico's tax measures discriminate against beet s ugar just as they do HFCS by offering an advantage 
on the use of cane sugar (which is almost exclus ively a domestic product) that it does not equally 
offer on beet sugar (which is exclusively an im ported product).  Specifically, Mexico's tax measures 
provide a complete tax exemption for use of th e domestic product, cane sugar, while denying that 
same exception to like imported products, whether HFCS  or beet sugar.  Mexico's HFCS soft drink 
and distribution taxes and reporting re quirements are, therefore, also inconsistent with Article III:4 as 
applied to beet sugar.  WT/DS308/R 
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 3. Mexico's tax measures are not justified under Article XX(d) of the GATT 1994 
4.258  Mexico asserts that, even if its tax measures are inconsistent with Article III, they are 
nevertheless justified as "necessary to secure compli ance" with United States obligations under the 
NAFTA.  Mexico contends that Article XX(d) of the GATT 1994 provides an exception for such 
measures.  Mexico is incorrect.  Article XX(d) pr ovides an exception for measures necessary to secure 
compliance with "laws or regulations."  It does not provide an exception for measures to secure 
compliance with obligations under an international agreement.  In arguing to the contrary, Mexico 
attempts to construct an entirely new Article XX  exception.  This new exception would offer WTO 
Members a free pass from their WTO obligations an y time a Member believes obligations owed it 
under the WTO Agreement or any other international agreement have not been fulfilled.  Such an 
exception would fundamentally undermine the dis pute settlement system established in the WTO 
Agreement and should be rejected. 
4.259  The party who invokes Article XX(d) as an affi rmative defence bears the burden of proof 
with respect to each element of that defence.  T hus, in this dispute Mexico must establish and prove 
that it has met each of the elements required for invocation of an Article XX(d) defence. 
4.260  The elements required to invoke Article XX(d) ar e that the measure at issue must: (1) concern 
compliance with "laws or regulations" which are not inconsistent with the GATT; (2) be designed to 
"secure compliance" with such laws or regulations;  and (3) be "necessary" to secure such compliance.  
If these elements are met, the measure will be provi sionally justified under paragraph (d).  However, 
for an Article XX defence to be successful, the a pplication of the measure in question must also 
comply with the chapeau to Article XX.  Whet her the measure is provisionally justified under 
paragraph (d) should be examined prior to consid ering whether the application of the measure is 
consistent with the chapeau. 
4.261  Mexico's tax measures do not qualify for an  Article XX(d) defence. They are not 
provisionally justified under paragraph (d) nor are they consistent with the requirements of the 
chapeau.  The failure of Mexico's Article XX(d) defen ce begins with the first step of the analysis as 
its tax measures do not concern compliance with "l aws or regulations."  The Panel may reject 
Mexico's Article XX(d) defence on this basis alone and, for this reason, it need not examine further 
whether Mexico's tax measures are "necessary to secur e compliance" or in keeping with the chapeau.  
That said, for the sake of completeness, the Unite d States has provided an analysis of each of the 
elements required to justify a measure under Article  XX(d), including the elements of the chapeau. 
(a) United States' obligations under the NAFTA are not "laws or regulations" 
4.262  Mexico's argument that Article XX(d) provides a legal justification for the HFCS tax depends 
on reading the phrase "laws or regulations" in Article  XX(d) to include obliga tions under international 
agreements.  Such a reading would be contrary to th e text of Article XX(d), read in its context and in 
light of the object and purpose of the GATT 1994. 
4.263  As explained in the United States responses to the Panel's questions, the ordinary meaning of 
"laws or regulations" is the domestic laws or regulations of a government.  The phrase "laws or 
regulations" is not defined as in cluding obligations under an intern ational agreement, which have a 
different meaning. 
4.264  This interpretation of the ordinary meaning of "laws or regulations" is supported by the 
context in which the phrase "laws or regulations " appears – namely, Article XX of the GATT and 
more broadly the GATT and the WTO Agreement as a whole.  In particular, Article XX itself 
distinguishes between "laws" and "regulations " on the one hand and "obligations" under an 
international agreement on the other.  Thus, wh ile Article XX(d) provides a defence for measures WT/DS308/R 
Page 52  
 
 necessary to secure compliance with "laws or regul ations," Article XX(h) provides a defence for 
measures "undertaken in pursuance of obliga tions under any intergovernmental commodity 
agreement."  There would be no reason for the diffe rent phrasing had the drafters intended "law or 
regulations" to mean the same thing as "obligatio ns under" an international agreement.  Indeed, 
reading "laws or regulations" to include obliga tions under "international agreements" would render 
Article XX(h) redundant. 
4.265  Other provisions of the GATT further suppor t the distinction between "laws" and 
"regulations" on the one hand and "agreements" an d "obligations" on the other hand.  The United 
States cited several examples in its responses to th e Panel's questions.  The United States emphasizes 
that none of those examples supports Mexico's c ontention that the phrase "laws or regulations" in 
Article XX(d) includes obligations under an intern ational agreement.  To the contrary, the cited 
examples reinforce that "laws or regulations" in th e context of Article XX(d) mean the domestic laws 
and regulations of a government. 
4.266  Further, variations on the phrase "laws or [and] regulations" appear many times in a number 
of the WTO agreements, each time referring to domestic  laws and regulations, not treaties.  For 
instance, Article XVI:4 of the Marrakesh Agreem ent Establishing the WTO provides that "[e]ach 
Member shall ensure the conformity of its laws, regulations and administrative procedures with its obligations as provided in the annexed Agreements." 
4.267  Moreover, Article 23 of the DSU provides "[w]hen Members seek the redress of a violation of 
obligations... under the covered agreem ents ... they shall have recourse to, and abide by, the rules and 
procedures of this Understanding."  Since the WT O Agreement is an international agreement, 
Mexico's reading of Article XX(d) would author ize unilateral action by any Member to secure 
compliance with another Member's obligations unde r the WTO Agreement.  Such a result, however, 
would be in clear conflict with Article 23, not to mention render it meaningless.  Mexico's reading of 
Article XX(d) would also render redundant Article  22 of the DSU, which prescribes rules for the 
suspension of concessions, including seeking author ization to do so from the DSB.  Mexico's 
interpretation of Article XX(d), however, woul d permit suspension of concessions without DSB 
authorization and without any require ment to adhere to the rules established in Article 22 of the DSU. 
4.268  Mexico's reading of "laws or regulations" is not  only incompatible with  the ordinary meaning 
of the term based on the customary rules of treaty interpretation, but has other far-reaching 
consequences as well.  The threat presented by Me xico's concept of Article XX(d) can best be 
understood by exploring where such a use of Articl e XX(d) would lead.  If "laws or regulations" are 
read to include international agreements, then an y Member can invoke Article XX(d) as justification 
for actions depriving others of their rights unde r the GATT to the exte nt needed to "secure 
compliance" with any other international agreemen t.  For example, Mexico's reading would also 
authorize trade measures by any Member to coerce compliance by another Member with treaty-based 
boundary claims or other international agreements. 
4.269  Against the above, Mexico has offered little in  support of its proposition that "laws or 
regulations" may include obligations owed it under th e NAFTA or any other international agreement.  
Mexico's point that "there are no GATT or WTO preced ents that reject Mexico's interpretation" only 
highlights the fact that not a single WTO Member or GATT 1947 contracting party has advocated such a position before a dispute settlement panel.  In fact, every GATT or WTO dispute settlement 
proceeding in which Article XX(d) has been invoke d, other than Mexico's in this dispute, has 
involved a domestic law enforcing another domestic regime.  In US – Shrimp , on which Mexico 
repeatedly relies (including for its contention that Article XX(d) encompasses obligations under an international agreement), the United States did not argue that its import ban was necessary to secure 
enforcement of the Inter-American Convention on the Protection and Conservation of Sea Turtles.  
Instead, it raised its Article XX defence under th e exception "relating to the conservation of  WT/DS308/R 
 Page 53 
 
 
 exhaustible natural resources," citing the Inter-A merican Convention as evidence that sea turtles 
constituted an exhaustible natural resource and that its import ban was not arbitrary or unjustifiable 
discrimination. 
4.270  Moreover, Mexico appears to argue , on the one hand, that Article XX(d)  must be "interpreted 
in accordance with the customary rules of international law" but, on the other hand, must be 
interpreted "with a view to the change[] in the international legal milieu that have occurred since 
Article XX was drafted in 1947."  The customary ru les of interpretation applicable in WTO dispute 
settlement provide that the terms of a treaty are to be interpreted based on their ordinary meaning in 
their context and in light of the treaty's object and purpose.  Mexico makes no effort to interpret 
Article XX(d) by reference to this fundamental ru le, and does not explain how or why its vague and 
unsupported references to "changes in  the international milieu" should affect the analysis under this 
rule.  Indeed, there is no basis for concluding that they should. 
4.271  Mexico also offers that "laws or regulations " encompass obligations under an international 
agreement because the Statute of the International C ourt of Justice "defines" "international law" to 
include "international conventions."  Mexico's reas oning is circular.  Mexico has not established that 
phrase "laws or regulations" as used in Article XX (d) means or includes "international law."  As 
explained above, "laws or regulations " mean the domestic laws or regula tions of a government.   It is, 
therefore, irrelevant whether international c onventions are included in the "definition" of 
"international law."  Moreover, there is a clear te xtual difference between "laws or regulations" and 
"international law."  For starters, one uses the singul ar "law" while the other uses the plural "laws."  
While one may speak of international "law" in th e same sense as one speaks about "common law" or 
the "law of the sea," international law is not ordinari ly used in the plural.  For example, Article 3.2 of 
the DSU provides that the dispute settlement system  serves to clarify the provisions of the covered 
agreements "in accordance with the customary rules of  interpretation of public  international law."  
The difference in usage of "laws" versus "law" in th e Spanish and French texts is even more striking. 
4.272  Moreover, the fact that the United States may re fer to arguments raised in the context of 
NAFTA proceedings as "legal" arguments does not make United States obligations under the NAFTA 
"laws or regulations" under Article XX(d).  Mexi co's argument merely assumes the conclusion that 
"laws or regulations" include international agre ements, simply because international agreements 
provide international legal obligations.  The argum ent does not address the point, however, of whether 
obligations – legal or otherwise – under an interna tional agreement are included "laws or regulations" 
within the meaning of Article XX(d). 
4.273  Finally, the United States is compelled to point out that, contrary to Mexico's suggestion  in 
response to question No. 25 of the Panel, the Unite d States has not conceded that NAFTA is a law.  
Rather, as explained in the United States opening statement, while a Member may adopt domestic 
laws in order to implement the terms of an inte rnational agreement, such as the NAFTA, obligations 
owed that Member by another Member under the te rms of that agreement do not constitute "laws or 
regulations" within the meaning of Article XX(d). 
(b) Mexico's tax measures are not designed to "secure compliance" 
4.274  Even if one could read "laws or regulations" to mean obligations owed another Member under 
an international agreement, Mexico 's tax measures are not designed to  "secure compliance" within the 
meaning of Article XX(d) of the GATT 1994. 
4.275  Although Mexico claims to have imposed its ta x measures to secure or induce United States 
compliance with the NAFTA, Mexico's position pr esupposes that the United States is not in 
compliance with its NAFTA obligations.  This positi on, however, is Mexico's own determination.  To 
be clear, it is the firm view of the United St ates that it is in full compliance with its NAFTA WT/DS308/R 
Page 54  
 
 obligations on market access for Mexican cane suga r.  That Mexico disagrees on this point does not 
convert its allegation  that the United States has not complie d with its NAFTA obligations into a 
breach of that agreement.  Mexico's tax measure s cannot be designed to secure "compliance" with 
obligations the United States does not have or  with obligations it has already fulfilled. 
4.276  Furthermore, as Mexico itself has confirmed, its tax measures apply to soft drinks and syrups 
and non-cane sugar swee teners imported from any WTO Member, not just those from the United 
States.  At no point, however, has Mexico explained how taxing soft drinks and syrups in this manner 
in any way contributes to United States complian ce with the NAFTA.  Rather, regardless of the 
source of the soft drinks and syrups or non-cane sugar sweeteners, a tax on their transfer or use protects Mexico's own cane sugar industry. 
(c) Mexico's tax measures are not "necessary" 
4.277  Even assuming arguendo  that Mexico's tax measures somehow contributed to NAFTA 
compliance, they are not "necessary" to secure such compliance as required by Article XX(d). 
4.278  In determining the necessity of a measure,  the Appellate Body has characterized 
Article XX(d) as involving a "process of weighing and balancing a series of factors which 
prominently include [1] the contribution made by the compliance measure to the enforcement of the 
law or regulation at issue, [2] the importance of th e common interests or values protected by that law 
or regulation, and [3] the accompanying impact of the law or regulation on imports or exports."  
Mexico's tax measures come up consid erably short in this balance. 
4.279  First, as reviewed above, Mexico's tax measu res do not contribute to enforcement of the 
NAFTA and have done nothing to contribute to the resolution of the dispute the United States and 
Mexico have over their obligations under NAFTA.  S econd, with respect to the "common interests or 
values" that Mexico's tax measures are designed to  protect, these are nothing more than the interests 
of Mexican sugar producers to be protected from competition from imported HFCS and other non-
cane sugar sweeteners.  The protection of a domest ic industry from imports cannot be an "important" 
interest in the context of Article XX. 
4.280  Third, Mexico's tax measures have had a dev astating effect on imports.  The first United 
States submission explained, for example, that Mexi co's tax measures have so severely penalized the 
use of imported HFCS, that since their enactment, Mexican imports of HFCS have fallen to less than 6 per cent of their pre-tax level and use of importe d HFCS as a sweetener soft drinks and syrups has 
ceased.   It is difficult to understand how this ha rm imposed on HFCS and soft drinks and syrups 
sweetened with HFCS is designe d to "secure compliance" with unrelated provisions under the 
NAFTA on market access for sugar. 
4.281  In analysing the extent to which a measure is "necessary," prior panels have also considered 
whether an alternative measure that is not incons istent with the GATT is reasonably available.  
Mexico had any number of alternative measures re asonably available to it – short of breaching its 
national treatment obligations – to assist its domestic cane sugar industry and/or resolve its 
disagreement with the United States over the exac t terms of the NAFTA.  As the party invoking 
Article XX(d), Mexico bears the burden of demonstra ting that this was not in fact the case.  Mexico 
has not done so.  For example, Mexico has yet to  explain why it is necessary to breach its national 
treatment obligations owed to all WTO Members to resolve a bilateral trade dispute with the United 
States. 
4.282  Mexico's suggestion that no alternative meas ures were available to it because the "United 
States has refused to submit to dispute settlement" under the NAFTA and "has preferred to drag on 
bilateral discussions" is misplaced on several levels.  In the first instance, the United States has not  WT/DS308/R 
 Page 55 
 
 
 "refused" to submit to dispute settlement under the NAFTA.  In fact, the United States has engaged in 
and completed two of the NAFTA's three "stages"  of dispute settlement.  The United States is 
currently engaged in the third stage.  Mexico's  suggestion that the United States is somehow 
"blocking" the process in breach of its obligations  under the NAFTA is, again, based on Mexico's own 
interpretation of the NAFTA and its  own determination as to whether the United States is acting in 
accordance those obligations.  For th e record, the United States does not view any of its actions as 
being inconsistent with the provisions of the NAFTA's dispute settlement mechanism. 
4.283  For this reason and the others stated above, Me xico has failed to demonstrate that its tax 
measures are provisionally justified under Article XX(d) as measures "necessary to secure compliance 
with laws or regulations."  The United States respectfu lly requests that the Panel find to this effect, in 
which case it would not be necessary to further c onsider Mexico's arguments with respect to the 
chapeau of Article XX.  If a measure does not meet  the requirements of one of the paragraphs of 
Article XX(d), it is not relevant whether it meets the elements of the chapeau. 
(d) Mexico's tax measures are incompatib le with the chapeau to Article XX 
4.284  Should the Panel, nonetheless, continue its analysis, it should also find that Mexico has failed 
to demonstrate that its tax measures meet the re quirements of the chapeau to Article XX because 
Mexico's application of its tax measures amounts to  a disguised restriction on international trade. 
4.285  The chapeau generally works to  prevent the abuse of the exceptions of Article XX by 
providing that measures falling within one of its para graphs must not be applied in a manner that 
constitutes "a means of arbitrary or unjustifiable discrimination between countries" or a "disguised 
restriction on trade."  "[D]isguised restrictions" embrace "restrictions amounting to arbitrary or 
unjustifiable discrimination in international trade taken under the guise of a measure formally within 
the terms of an exception listed in Article XX."  Because Mexico's tax measures do not meet the 
elements of paragraph (d), Mexico cannot possibly demonstrate that application of its tax measures 
are "formally within the terms of an exception liste d in Article XX" and applied in a manner that does 
not constitute arbitrary or unjustifiable discrim ination or a disguised restriction on trade. 
4.286  Further, Mexico has openly stated that its ta x measures are designed to protect its cane sugar 
industry.  Yet, in asserting its Article XX(d) excep tion, Mexico contends that its tax measures are 
designed to secure United States compliance with the NAFTA.  In other words, Mexico claims its tax 
measures are, for purposes of asserting its Article XX(d) defence, measures to secure United States compliance with NAFTA.  But this asserted purpose of its tax measures does not match with the repeated statements by the Mexican Government  and Supreme Court, as documented in the United 
States first submission, that its tax measures ar e designed to protect Mexican production of cane 
sugar.  Accordingly, Mexico's tax measures are not  in fact a legitimate Article XX(d) measure, but 
rather are nothing more than disguised restrictions on trade – namely, measures to protect its domestic 
cane sugar industry from imported HFCS. 
4.287  Mexico's references to US – Shrimp  in this respect are essentially irrelevant.  Mexico has 
referred to US – Shrimp  to argue that an attempt to negotiate an agreement is sufficient to authorize a 
WTO Member to breach its WTO obligations.  Mexico 's argument does not reflect a correct reading 
of the report in that dispute.  In US – Shrimp , the measure at issue had already been found to be 
provisionally justified under Article XX(g) as a m easure relating to the conservation of a natural 
resource.  As stated above, Mexico cannot provision ally justify its tax measures under Article XX(d).  
Moreover, US – Shrimp
 does not stand for the proposition that once a Member attempts to negotiate a 
solution to a "dispute," it is then free to breach its WTO obligations. 
4.288  In sum, Mexico's tax measures are not provisi onally justified under Article XX(d), nor are 
they applied in a manner consistent with its chap eau.  There is no Article XX exception for measures WT/DS308/R 
Page 56  
 
 designed to secure a Member's compliance with  obligations owed another Member under an 
international agreement – whether that agreement is the WTO Agreement, the NAFTA or any other 
international agreement.  The Panel should rej ect Mexico's Article XX(d) defence accordingly. 
4.289  Mexico makes other general assertions about "i nternational law" and its importance. Leaving 
aside the fact that Mexico has not  identified what principles of "i nternational law" these may be, the 
rights and obligations of WTO Members are found in the text of the WTO Agreement, and with 
respect to whether Mexico is entitled to an excepti on for its tax measures under Article XX(d), in the 
text of Article XX(d). 
4. Conclusion 
4.290  For the reasons set out above, the United States respectfully requests the Panel to find that 
Mexico's tax measures are: 
 With respect to sweeteners: 
 
(1) inconsistent with GATT Article III:2, second sentence, as a tax applied on imported 
HFCS which is "directly competitive or s ubstitutable" with Mexican cane sugar which 
is "not similarly taxed" (HFCS soft drink tax); 
 
(2) inconsistent with GATT Article III:2,  second sentence, as a tax applied on the 
agency, representation, brokerage, consignm ent and distribution of HFCS which is 
"directly competitive or substitutable" w ith Mexican cane sugar which is "not 
similarly taxed" (distribution tax); 
 
(3) inconsistent with GATT Article III:2, firs t sentence, as a tax applied on imported beet 
sugar which is "like" Mexican cane sugar and is taxed "in excess of" Mexican cane 
sugar (HFCS soft drink tax); 
 
(4) inconsistent with GATT Article III:2, fi rst sentence, as a tax applied on the agency, 
representation, brokerage, cons ignment and distribution of  beet sugar "in excess of 
those applied to like domestic products" (distribution tax); 
 
(5) inconsistent with GATT Article III:4 as a la w that affects the internal use of imported 
HFCS and imported beet sugar and accords HFCS and beet sugar "treatment ... less 
favourable than that accorded to li ke products of national origin" by: 
 
(a) taxing soft drinks and syrups that use HFCS or beet sugar as a sweetener 
(HFCS soft drink tax), 
 
(b) taxing the agency, representation, brok erage, consignment and distribution of 
soft drinks and syrups sweetened with HFCS or beet sugar (distribution tax), 
and 
 
(c) subjecting soft drinks and syrups sw eetened with HFCS or beet sugar to 
various bookkeeping and reporting requir ements (reporting requirements); 
 
 With respect to soft drinks and syrups: 
 
(6) inconsistent with GATT Article III:2, firs t sentence, as a tax applied on imported soft 
drinks and syrups sweetened inter alia with HFCS and beet sugar," in excess of those 
applied to like domestic produc ts" (HFCS soft drink tax);  WT/DS308/R 
 Page 57 
 
 
  
(7) inconsistent with GATT Article III:2, fi rst sentence, as a tax applied on the agency, 
representation, brokerage, consignment and distribution of soft drinks and syrups 
sweetened inter alia with HFCS and beet sugar, "in excess of those applied to like 
domestic products" (distribution tax); 
 
(8) inconsistent with GATT Article III:2, second sentence, as a tax applied on imported 
soft drinks and syrups sweetened with HFCS, which are directly competitive or substitutable with domestic soft drinks and syrups which are "not similarly taxed" 
(HFCS soft drink tax); and 
 
(9) inconsistent with GATT Article III:2, sec ond sentence, as a tax applied on the agency, 
representation, brokerage, consignment and distribution of soft drinks and syrups 
sweetened with HFCS, which are directly competitive or substitutable with domestic 
soft drinks and syrups which are "not similarly taxed" (distribution tax). 
 
I. S
ECOND WRITTEN SUBMISSION OF MEXICO  
1. Introduction 
4.291  Mexico received the Panel's decision to refuse to  decline its jurisdiction with disappointment, 
particularly since, as the Panel will see, the se cond round of written submissi ons allows Mexico to 
elaborate upon its earlier submissions in light of certain admissions made by the United States. 
4.292  The key facts have been established, particularly  in light of certain admissions made by the 
United States.  They raise legal issues of fundament al importance in terms of the GATT's interaction 
with the institutions and rules of a regional free trade agreement authorized by its Article XXIV. 
4.293  The question presented for this Panel, is how  should it respond to this dispute which has 
arisen under a free trade agreement authorized by GATT Article XXIV.  The parties are agreed that 
this Panel does not have jurisdiction over the NAFTA or disputes arising thereunder. 
4.294  The Panel should find that it would be both artific ial and highly prejudicial to Mexico to treat 
the United States' complaint as anything other than  an attempt to present to its advantage a narrow 
slice of a larger dispute that plainly falls outside of the WTO's jurisdiction.  Equity is in Mexico's favour: 
 – Treating the dispute as purely a WTO dispute rewards the United States for engaging 
in forum shopping while it continues to bloc k Mexico's good faith attempts to resolve 
its long-standing grievance. 
  – It is entirely possible – indeed likely – that if this Panel were to make the rulings 
requested by the United States, its findings w ould directly contradict those made by a 
NAFTA Panel presented with the same facts. 
  – A side effect of the United States' complaint that would cause additional harm is the 
possibility of collateral findings of fact bei ng made by this Panel which could be used 
by the NAFTA Chapter Eleven claims agains t Mexico.  This Panel is being asked to 
determine legal issues in a narrower le gal context (the GATT 1994) that may 
prejudge the resolution of the same and additional issues under a different, broader 
set of treaty rules (the NAFTA). 
 WT/DS308/R 
Page 58  
 
 4.295  In short, accepting the United States' arguments  will not "secure a positive solution" to the 
dispute, which is the very aim of the WTO dispute settlement mechanism.  It  is likely to exacerbate 
the dispute. 
2. Review of the facts 
4.296  The United States has tried to characterize some of the facts in a way that reflects less poorly 
on its intransigence;  but, other than to deny a NAFTA breach
57, it has not contradicted any Mexican 
factual assertion as to its conduct in the events gi ving rise to this dispute or as to the serious 
consequences of the limited access to the United States' market for the Mexican sugar industry and the 
millions of people who depend upon it.58 
3. The United States' response 
(a) The United States' characterization of the NAFTA dispute 
4.297  The United States accuses Mexico of failing to obtain a panel finding of breach of the 
NAFTA when it has entirely blocked Mexico's effort s to establish the Panel.  The United States goes 
further to argue that the Panel must not take th e United States' own conduct in creating this impasse 
into account.    
(b) General comment on the United States' position 
4.298  International law, of which WTO law is a part , does not support the United States' claim.  As 
the Permanent Court of International Justice observed in the Chorzów Factory  (Merits) Case:  
"[O]ne party cannot avail himself of the fact that the other has not fulfilled some 
obligation, or has not had recourse to some means of redress, if the former party has, 
by some illegal act, prevented the latter fro m fulfilling the obligation in question, or 
from having recourse to the tribunal wh ich would have been open to him."59 
4.299  This is a recognized general principle of international law.60   The United States' conduct is 
highly relevant to the Pa nel's consideration of wh ether, through the measure at issue, Mexico is 
justifiably seeking to secure the United States' compliance with the NAFTA.  
4.300  The United States appears to contend that, pursuan t to its terms of refe rence, the Panel cannot 
examine rules of international law other than t hose set out in the WTO "covered agreements".  
4.301  WTO jurisprudence confirms that WTO panels and the Appellate Body can fall back on, and 
even apply, principles of customary international law in WTO disputes. 
4.302  WTO panels are also to interpret the WTO ag reements in accordance with the customary 
rules of interpretation in international law.  The Vienna Convention on the Law of Treaties, which has 
repeatedly been held to codify such rules, provi des in Article 31(3) that, in interpreting a treaty, 
account shall be taken not only of the treaty itself (i .e., GATT 1994), but also of "any relevant rules of 
international law applicable in th e relations between the parties".  
                                                      
57 Closing statement of the United States, first meeting of the Panel, para. 9. 
58 For example, it has not denied that it instructed the United States' Section of the NAFTA Secretariat 
not to appoint panelists after it was requested to do so by Mexico. 
59 PCIJ. Ser. A, No. 17, p. 29. 
60 Brownlie refers to this as an example of the Inte rnational Court employing a general principle of law. 
See Brownlie, Principles of Public International Law , (Oxford University Press, 6th ed. ) p. 17.  Exhibit 
MEX-35.  WT/DS308/R 
 Page 59 
 
 
 (c) The United States cannot specify what other avenues were open to Mexico 
4.303  Although it says that Mexico should have taken ot her action to protect its interests, the United 
States does not specify what such action should have  been.  The United States ignores the fact that 
Mexico exhausted all diplomatic a nd other efforts before adopting the measure.  In the meantime, its 
industry faced a severe financial crisis that threatened to become a social one.   
4.304  Moreover, the United States has implicitly conceded  that it continues to adhere to its view 
that a State has the right to take unilateral action to protect its interests, as a perfectly justified 
response, given the failure of bilateral efforts to resolve the problem,  due to the intransigence of 
another State in blocking resort to and th e operation of a non-WTO treaty dispute settlement 
mechanism.  Thus, the United States has not ruled out taking the same sort of action as Mexico did. 
(d) The United States' practice under the NAFTA 
4.305  Since NAFTA's entry into force, the United States has also taken  rebalancing action. 
4.306  After NAFTA's entry into force, Canada raised  its tariffs on certain agricultural products on 
an MFN basis when implementing the Uruguay Round results.  Canada applied its new agricultural 
tariffs on imports of United States-originating agri cultural products.  The United States argued this 
was contrary to NAFTA's Article 302, which prohi bits a Party from increasing any existing customs 
duty on an originating good.  
4.307  In addition to initiating NAFTA's Chapter Twen ty dispute settlement proceedings (to which 
Canada submitted), the United States took the same  action as the Canadian action of which it 
complained;  that is, it rebalanced the situation in view of Canada's action . 
4.308  This United States action is inconsistent with  the position now taken in the United States' 
response to Panel question No. 30, but consistent w ith United States' practice in other contexts:  for 
example, in response to a measure taken by Fran ce under a bilateral civil aviation agreement which 
severely limited United States' carriers from changing th e gauge of aircraft for flights into Paris, the 
United States imposed substantial restrictions on Ai r France's ability to fly into the United States in 
order to induce France to submit the dispute to arb itration under the treaty.  The arbitral tribunal later 
upheld the United States' measures as a lawful a nd generally proportionate  measure intended to 
induce France to submit to dispute settlement.61   
(e) The United States' statements before the WTO on taking unilateral action outside of the WTO 
4.309  The Panel will be aware of the Eu ropean Communities' complaint in US – Section 301 Trade 
Act.62  The European Communities challenged the WTO- consistency of a United States statute that 
conferred certain retaliatory powers on the Executiv e Branch, contending that the statute mandated 
action inconsistent with United States' obligations under the WTO Agreements, specifically the DSU.  
4.310  Paragraphs 4.133-4.136 of the Panel Report reco rd the United States' explanation that it 
distinguished between retaliating against a WTO trad ing partner for matters governed by the WTO (in 
which case it would invoke DSU procedures before  imposing retaliatory measures) and imposing 
measures on a WTO trading partner for matters fa lling within a non-WTO agreement (in which case, 
                                                      
61 United States response to Panel questions, para. 71.  For an example of the United States taking 
measures in advance of a dispute panel ruling, see the Air Services Agreement of 27 March 1946 Arbitration 
(United States v. France), RIAA XVIII, p. 146 (1979).  Exhibit MEX-37. 
62 Report of the Panel on  US –  Section 301 Trade Act . WT/DS308/R 
Page 60  
 
 it considered itself free to impose sanctions where another State blocked the operation of a dispute 
settlement mechanism).   
4.311  The United States plainly reserved its right to  take unilateral action against another WTO 
Member in relation to non-WTO c overed agreements such as NAFTA. 
4.312  The Panel concluded that, having regard to th e statutory scheme and to representations made 
to it by the United States during the course of  the proceeding, section 304 could be applied 
consistently with United States' WTO obligations.  However, it is plain from the structure of the 
United States law, the Statement of Administrative Ac tion, the United States' statements to the Panel, 
and from the Panel Report itself
63, that these all related solely  to the situation where the United States 
considered that another WTO Member had violated a WTO covered agreement.  The United States 
did not repudiate its legal right to take action wher e, for example, a State blocked the operation of a 
non-WTO trade agreement's dispute settlement mechanism.  
4. Legal submissions 
(a) This Panel's powers under the applicable "covere d agreements" are broader and more flexible 
than the United States contends  
4.313  The United States has contended that the Panel " cannot  resolve the matter in dispute" 
(emphasis added) – i.e., the United States claims that Mexico's tax measures are inconsistent with Article III of the GATT – unless it issues findings of breach.
64   This argument attempts to constrain 
the Panel more tightly than the actual text of GATT 1994 or the DSU either provides or requires.  
4.314  It warrants noting that, having directed the Panel to Articles 11 and 7 of the DSU, the United 
States does not take the crucial next step of turni ng to what the applicable covered agreement, GATT 
1994, actually requires a panel to do.  Since the DS U refers to the GATT 1947 in this regard, Mexico 
will focus on that agreement.65    
4.315  Article XXII did not require a panel to make  a ruling of breach; rather, it mandated the 
Contracting Parties "to consult with any contracting party or parties  in respect of any matter for which 
it has not been possible to find a satisfactory so lution through consultati on under paragraph 1."  
(emphasis added)  The article's reference to parties in the plural indicates that its purpose was to assist 
disputing parties in finding satisfactory solutions to  their differences, precisely what Mexico is asking 
this Panel to do. 
4.316  Similarly, Article XXIII:2 provided for the referral  of a matter (including an alleged failure of 
a Contracting Party to carry out its  obligations under the GATT or a C ontracting Party's application of 
a measure which conflicts with the provisions of the GATT) to the CONTRACTING PARTIES.   
4.317  Three points warrant noting:  First, Arti cles XXII and XXIII conferred discretion upon the 
CONTRACTING PARTIES (and panels acting at their be hest).  Second, neither set limits on a panel's 
power to shape its recommendations or make a "ruli ng in the matter" in response to the facts peculiar 
                                                      
63 The Panel noted at para 7.13, that it was not its "task to examine any asp ects of Sections 301-310 
outside the EC claims.  We are, in particular, not ca lled upon to examine the WTO compatibility of US actions 
taken in individual cases in which Sections 301-310 have been applied.  Likewise, we have not been asked to 
address the WTO consistency of those provisions in Section 301-310 relating to determinations and actions 
taken by the USTR that do not concern the enforcement of US rights under the WTO Agreement , including the 
provisions authorizing the USTR to make a determination as to whether or not a matter falls outside the scope of 
the WTO Agreements." (emphasis added) 
64 United States response to Panel questions, para. 3.r 
65 See Article 3(1) of the DSU.  WT/DS308/R 
 Page 61 
 
 
 to a particular case.  To the contrary, they are to determine what is appropriate  in the circumstances.  
Finally, these remedies were available to the CONT RACTING PARTIES in situations where a breach 
of the GATT was alleged.   
4.318  GATT's dispute settlement procedures evolved, but when it came to creating the WTO's 
dispute settlement system in the early 1990s, the drafters did not amend GATT Articles XXII and 
XXIII when GATT 1947 became GATT 1994.   
4.319  This affirmation of the flexibility expr essly reserved by and to the CONTRACTING 
PARTIES some 47 years after GATT 1947's entry into  force shows that the WTO Members sought to 
retain a measure of flexibility in dispute settlement proceedings involving GATT 1994.   
4.320  The flexibility that GATT's drafters established is  preserved in the DSU:  "In the absence of a 
mutually agreed solution, the first objectiv e of the dispute settlement mechanism is usually  to secure 
the withdrawal of the measures concerned if these are found to be inconsistent with the provisions of 
any of the covered agreements … " (emphasis added) 
4.321  Article 11 of the DSU contemplates other possib ilities that the United States has chosen to 
ignore.  Thus, it would be within the Panel's disc retion, based on an objective assessment of the matter 
before it, to recommend what steps the parties sh ould take to "secure a positive solution to the 
dispute".   
(b) Mexico's measures can be ju stified under Article XX(d) 
(i) The United States' position on Article XX( d) is internally inconsistent 
4.322  The United States' suggestion that an intern ational treaty cannot be a "law" within the 
meaning of Article XX(d) is  contradicted by paragr aph 54 of the United States' response to the Panel's 
questions, where it is stated: 
"Article XX(d) of the GATT does not justify measures adopted by one Member to 
secure compliance by another Member  with international obligations arising from a 
treaty which is not part of the WTO 'covered agreements .'"(emphasis added) 
4.323  This contemplates that Article XX(d) justifi es GATT-inconsistent measures adopted by one 
WTO Member to secure another Member's comp liance with obligations under a WTO covered 
agreement.  Nothing in the GATT suggests that th e term "laws" encompasses only the WTO "covered 
agreements", but not other international treaties that  are not only not inconsistent with the provisions 
of GATT 1994 but are expressly authorized by Article XXIV. 
4.324  The United States reviews the wording of va rious GATT 1994 provisions to point out that 
different words (laws, regulations, obligati ons, etc.) are used in different places.  
4.325  On the United States' reading of the GATT, it has obligations under the NAFTA, but those 
obligations are not to be confused with "law".  Ther efore, it says that Article XX(d) is not available to 
Mexico to justify a measure designed to secure  United States' compliance with its admitted 
obligations that exist only by virtue of an interna tional legal instrument enforceable (theoretically, at 
least66) by law.   
                                                      
66 The NAFTA Parties intended and considered them to be enforceable until the United States refused 
to participate in NAFTA dispute settlement. WT/DS308/R 
Page 62  
 
 4.326  Mexico observed that international law is no less law than domestic law.  In fact, the United 
States concedes that it entered into international legal obligations vis-à-vis  Mexico.  The definition of 
"international agreement" cited by the United St ates supports this view:  "treaties and other 
agreements of a contractual character be tween different countries … creating legal
 rights and 
obligations".67  
4.327  The United States argues that the drafters of Ar ticle XX(d) precluded the justification offered 
by Mexico because, rather than using "obligations",  they used the word "law s".  Yet this ignores the 
fact that laws by definition encompass obligatio ns.  In other words, the term "laws" includes 
obligations under international treaties.68   Accordingly, the relevant question regarding the meaning 
of "laws or regulations" in these proceedings is whether these terms include international law.   
4.328  In short, if, as the United States contends, measures taken to enforce the WTO covered 
agreements can be justified unde r Article XX(d) as "necessary to secure compliance with laws … 
which are not inconsistent with the provisions of this Agreement", the text can equally support other 
laws such as Article XXIV free trade agreements whic h, as Mexico pointed out, are "not inconsistent 
with the provisions of" GATT 1994. 
(ii) Article XX(d) of the GATT 1994 can justify measures necessary to secure compliance with 
laws or regulations applicable outside the terr itorial jurisdiction of the Member taking the 
measure 
4.329  As discussed in Mexico's response to qu estion No. 25 from the Panel, GATT and WTO 
jurisprudence interpreting Article XX of the GAT T confirms that other paragraphs of the GATT 
General Exceptions clause are capable of be ing interpreted to encompass otherwise GATT 
inconsistent measures relating to measures of other States or to activities occurring outside of the 
territory of the State invoking Article XX.  For example,  in paragraphs 5.15 and 5.16 of its Report, the 
GATT Panel US – Tuna (EEC) stated as follows: 
"The Panel noted that two previous panels  have considered Article XX(g) to be 
applicable to policies related to migratory species of fish, and had made no distinction 
between fish caught within or outside the territorial jurisdiction of the contracting 
party that had invoked this provision." 
The Panel then observed that measures providi ng different treatment to products of 
different origins could in principle be take n under other paragraphs of Article XX and 
other Articles of the General Agreement with  respect to things located, or actions 
occurring, outside the territorial jurisdic tion of the party taking the measure. An 
example was the provision in Article XX(e) relating to products of prison labour.  It 
could not therefore be said that the Gen eral Agreement proscribed in an absolute 
manner measures that related to things or actions outside the territorial jurisdiction 
of the party taking the measure ."69  (emphasis added)  
4.330  In its second submission to the WTO panel in US – Shrimp , the United States argued 
strenuously that the US – Tuna (EEC)  panel had rejected Thailand's argument that Article XX 
implicitly contained a territorial jurisdiction limitation.70  
                                                      
67 United States response to Panel's questions, para. 71. 
68 Article 38 of the Statute of th e International Court of Justice. 
69 GATT Panel Report on US – Tuna (EEC)  (unadopted), paras. 5.15-5.16. 
70 US – Shrimp , second submission of the United States, July 28, 1997, paras. 74-76.  Exhibit MEX-41.  WT/DS308/R 
 Page 63 
 
 
 4.331  The Appellate Body found that there was no va lid reason for supporting the conclusion that 
either Article XX(b) or (g) apply only to policies in respect of things located or actions occurring 
within the territorial jurisdiction of the Member  taking the measure.  Against this background, a 
territorial jurisdiction limitation equally need not be  read into Article XX(d).  In Mexico's view, 
paragraph (d) of Article XX can encompass measures  necessary to secure compliance with laws that 
bind the two (or more) States concerned.  
(iii) The United States' distinction is not borne out in NAFTA itself 
4.332  The United States' very strict dualist separati on between international and domestic law is 
overstated when United States treaty practice is taken into account.71    
4.333  The United States has viewed th e NAFTA as creating obligations that redound to the benefit 
of private parties and while it does not confer a ri ght of action upon private parties, its domestic law 
provides a mechanism for interested persons to secure another Party's compliance with NAFTA by 
petitioning the United States government to take acti on against that Party.  Mexico understands that, 
under United States law, the Office of the United St ates Trade Representative is legally obliged to 
fully investigate such a complaint and to take actio n against the other Party if it concludes that the 
other Party may be in breach of the Treaty. 
(c) The nature of the Mexican measures 
4.334  In its response to questions, the United States makes much of its effort to protect the 
multilateral system.72  It is true that Mexico's measures do not distinguish between HFCS imports 
from the United States and other WTO Members.  Indeed, they do not distinguish between imported 
fructose and domestically produced fructose.  Th is is because of the nature of the trade. 
                                                      
71 In Article 2021 of the NAFTA, the Parties found it necessary to prohibit any of them from creating a 
domestic cause of action that would allow private parties to sue in the domestic courts of a Party in order to 
secure another NAFTA Party's compliance with its NAFTA obligations.  Article 2021 provides that:  "No Party 
may provide for a right of action under its domestic law against any other Party on the ground that a measure of another Party is inconsistent with this Agreement."  Canada provided in its North American Free Trade 
Agreement Implementation Act:  6(1) No person has any cause of action a nd no proceedings in any kind shall 
be taken, without the consent of the Attorney General of Canada, to enforce or determine any right or obligation 
is claimed or rises solely under or by virtue of Part 1 [Implementation of Agreement Generally] or any other 
order or regulation made under Part 1.   See exhibit MEX-42.  The Unite d States provided likewise in 
Section 102(c) of the North American Fr ee Trade Agreement Implementation Act:  " No person other than the 
United States … shall have any cause of action or defence under  … the [NAFTA] or by virtue of Congressional 
approval thereof …. "  It was unnecessary for Mexico to enact a similar provision because the NAFTA has direct 
effect under Mexican constitutional law and therefore Ar ticle 2021, like the rest of NAFTA, had immediate 
effect without further implementing action.  It would have been unnecessary to prohibit a domestic cause of 
action if the NAFTA could never have the effect of a law in the internal legal order of a Party.  Removing the possibility of a private right of action did not constrain any of the Parties themselves from taking action to 
secure another Party's compliance with the NAFTA thro ugh executive or legislativ e measures.  Indeed, the 
United States retained a domestic right of petition in section 301 of its Trade Act  of 1974, which permitted a 
private party to petition the USTR to secure complia nce with the NAFTA by an other NAFTA Party.  See 
Exhibit MEX-43. 
72 "[T]he United States has difficulty understanding how a breach of Mexico's WTO obligations 
contributes to these goals" [para. 78], " the United States finds it difficult to understand how, in seeking to 
enforce the alleged obligations of the United States under the NAFTA, it is necessary to breach the national 
treatment obligations Mexico has undertaken  with respect to every other WTO Member " [para. 79], and " no 
matter what Mexico's complaint might be, Mexico c ould have sought NAFTA complia nce through any number 
of means  - diplomatic or otherwise – short of breaching its WTO obligations " [para. 80]. WT/DS308/R 
Page 64  
 
 4.335  The measures related virtually exclusively to the United States, not to other WTO Members.  
Mexico appreciates that other Members have a systemic interest in the matter, but the fact is that the 
trade was overwhelmingly one that arose under the NAFTA and was supplied by the United States.  
The measures are a response to its persistent refusal to respond to Mexico's repeated efforts to resolve 
the dispute.
73  
(d) The measures at issue meet the necessity test under Article XX(d) of the GATT 1994 
4.336  The United States argues that Mexico's ta x measures cannot be necessary to secure 
compliance with the NAFTA.74   It maintains its position that none of the Mexican or United States 
concerns about the dispute over bilateral trade in sw eeteners has been resolved.  In short, the United 
States suggests that because the measures at issue ha ve so far not succeeded in securing United States 
compliance with the NAFTA, they cannot be n ecessary within the meaning of Article XX. 
4.337  Mexico has three responses to this argument: 
 – First, in Korea – Various Measures on Beef , the Appellate Body did not rule that only 
measures that actually secure compliance with the law or regulation at issue can be deemed "necessary" within the meaning of Artic le XX(d).  Rather, it stated that "[t]he 
greater the contribution [to the realization of the end pursued], the more easily a 
measure might be considered to be 'necessary'".
75   Measures that make a lesser 
contribution to securing compliance with a law or regulation may also be "necessary".   
  – Second, from Mexico's perspective, the measures at issue actually greatly contribute 
to the end pursued by Mexico, that is, the securing of United States compliance with 
the NAFTA.  The record evidence reveals that  the adoption of the tax initially created 
the desired dynamic to secure the United Stat es' compliance or otherwise arrive at a 
mutually satisfactory resolution.  This in terest dissipated when the United States 
launched this WTO proceeding, but the pro ceeding itself is further evidence that the 
Mexican measures had their intended effect of attracting United States attention with 
a view to resolving the dispute over its compliance with NAFTA.  Mexico believes 
that if this Panel upholds Mexico's position, the measures will induce the United States to finally resolve the entire dispute. 
  – Third, conversely, if the Panel accedes to  the United States' arguments, it will damage 
Mexico's prospects for securing United St ates' compliance with the NAFTA.  The 
Panel will have assisted the United States in continuing to block any resolution of 
Mexico's grievance.  This would be plainly unfair.  
 
                                                     
 
73 As the International Law Commission noted in its commentary on counter-measures, " [a] second 
essential element of countermeasures is that they 'm ust be directed against' a State which has committed an 
internationally wrongful act …"  " This does not mean that countermeasures may not incidentally affect the 
position of third States or indeed other third parties.  ... Similarly if, as a consequence of suspension of a trade 
agreement, trade with the responsible State is affected and one or more companies lose business or even go 
bankrupt.  Such indirect or collateral effects cannot be entirely avoided. "  See James Crawford, " The 
International Law Commission's Articles on State Responsibility: Introduction, Text and Commentaries ", 
(Cambridge University Press 2002) p. 285. 
74 United States response to Panel questions, paras. 75-80. 
75 Appellate Body Report on Korea – Various Measures on  Beef , para. 163.  WT/DS308/R 
 Page 65 
 
 
 5. The United States has not responded to Mexico 's arguments that the measures meet the 
requirements of the chapeau of Article XX of the GATT 1994 
4.338  In its previous submission, Mexico established pr ima facie that the measures at issue meet the 
requirements of the chapeau of Article XX of the GA TT 1994.  In this regard, Mexico notes that the 
United States has not responded to the substance of  its arguments.  Accordingly, should the Panel 
determine that the measures are provisionally justifie d under paragraph (d), it should also find that the 
measures are not applied in a manner that creates arbitrary or unjustifiable discrimination between countries where the same conditions prevail or a disguised restriction on international trade. 
4.339  Mexico's good faith efforts to resolve this long- standing dispute clearly meet the requirements 
set out by the Appellate Body in US – Shrimp .  
6. Conclusion 
4.340  Mexico reiterates its request that this Panel take  particular care in formulating its findings and 
recommendations so as not to suggest that it is defi nitively interpreting the parties' respective rights 
and obligations under the NAFTA.  Mexico nevertheless requests that in applying Article XX of the 
GATT 1994 and in deciding as to the scope and content of any recommendations that it may issue, the 
Panel consider the undisputed facts of the United States' admission of the existence of a NAFTA 
dispute and its failure to rebut Me xico's allegations that it has refu sed to submit to the NAFTA dispute 
settlement procedure.  
4.341  For the foregoing reasons and those set out in Mexico's prior submissions, Mexico reiterates 
its request that the United States' complaint be rejected. 
J. O
PENING STATEMENT OF THE UNITED STATES AT THE SECOND MEETING OF THE PANEL  
1. Introduction 
4.342  This statement will briefly review the status of  this dispute, and will principally focus on 
responding to the arguments presented by Mexico co ncerning Article XX(d) in its second submission. 
2. Status of this dispute 
4.343  This dispute, as the Panel is well aware, and despite Mexico's repeated attempts to argue 
otherwise, concerns Mexico's obligations under the WTO Agreement and cer tain tax measures that 
Mexico imposes on non-cane sugar sweeteners and soft  drinks and syrups.  Mexico readily admits 
that it imposed these tax measures to stop the disp lacement of Mexican cane sugar by imports of 
HFCS from the United States.    
4.344  The United States first and second submissions  and responses to Panel questions have 
presented all of the facts and argument necessary to  establish a prima facie case that Mexico's tax 
measures on soft drinks and syrups – contained in  the IEPS – are in breach of its obligations under 
Articles III:2 and III:4 of the GATT 1994.  Mexico has not contested any of those facts or arguments.  
Accordingly, the United States will focus here on Me xico's alleged defence under Article XX(d) of 
the GATT 1994.  
3. Article XX(d) – "laws or regulations" 
4.345  Under this defence, Mexico contends that its tax measures are necessary to secure United 
States compliance with the NAFTA and, therefor e, justified as an exception to WTO rules under WT/DS308/R 
Page 66  
 
 Article XX(d).  As the party asserting it, Mexico b ears the burden of proof on this defence.  Mexico 
has not met that burden and, therefore, cannot justify its tax measures under Article XX(d).   
4.346  The fundamental flaw in Mexico's defence is  that Article XX(d) pertains to "laws or 
regulations," not obligations owed Mexico under th e NAFTA or any other international agreement.  
Thus, the energy Mexico has expended attempting to convince the Panel that its tax measures are 
"necessary" or "justifiable," because Mexico has "exha usted" efforts to find a solution to the NAFTA 
sugar dispute, are simply efforts to distract attenti on from the fact that Mexico is unable to sustain its 
assertion that "laws or regulations" means or includes obligations under an inte rnational agreement.   
4.347  As the United States explained in its second submission and in response to the Panel's 
questions, the phrase "laws or regulations" means rule s promulgated by a government such as statutes 
or administrative rules – in other words, the domestic  laws or regulations of the Member applying the 
measure at issue.  This is the interpretati on of the phrase "laws or regulations" derived from 
application of the Vienna Convention rules of tr eaty interpretation.  These rules direct the treaty 
interpreter to the ordinary meaning of the terms of th e treaty in their context and in light of the treaty's 
object and purpose.
76  As demonstrated in the United States responses to questions and second 
submission, the ordinary meaning of "laws or regula tions" is the domestic laws or regulations of the 
Member claiming the Article XX(d) exception.  Th is meaning is supported by (1) the dictionary 
definition of the words "laws" and "regulations"; (2 ) the use of the words "laws" and "regulations" as 
opposed to the words "obligations" or "agreements"  used in Article XX and elsewhere in the GATT 
1994 and the WTO Agreement77; and (3) the effect on the WTO Agreement of reading the phrase 
"laws or regulations" to include obligat ions under international agreements.78  The United States has 
already detailed each of these points in previous su bmissions.  The United States emphasizes here that 
acceptance of Mexico's interpretation of "laws or regulations" to include obligations owed Mexico 
under the NAFTA would open the door for any Memb er to claim that a breach of the WTO 
Agreement, or some other treaty, by another Memb er meant that the Member was free to breach any 
of its WTO obligations.  Such a reading of Article  XX(d) would nullify Article 23 of the DSU, render 
Article 22 of the DSU meaningless, and significantly undermine the effective functioning of the WTO 
dispute settlement system. 
4.348  Such a reading would also mean that WTO pa nels and the Appellate Body would be called 
upon to examine any treaty that was the subject of such a claim of breach to determine if the trade 
measures adopted were "necessary to secure compliance"  with that treaty.  To do so would require 
WTO panels or the Appellate Body to determine if  there was, in fact, a breach of the underlying 
agreement.  In other words, WTO dispute settle ment would become a forum of general dispute 
resolution for all international agreements, and all su ch agreements would be in effect incorporated 
into, and enforced by, the WTO Agreement by virtue of Article XX(d).  This cannot possibly be what 
Mexico, let alone other WTO Members, intends.  Ironically, it would also mean that with each additional international agreement a Member enters  into, the more it diminishes the benefits secured 
under the WTO Agreement:  the Member's WTO right s would be subject to being infringement by 
any party with whom it had entered into an intern ational agreement so long  as the party claimed the 
WTO breach was to secure complianc e with the non-WTO Agreement. 
4.349  Despite the serious, even astounding, implications  of what Mexico argues, it is surprising how 
little Mexico has provided in support of its cont ention that United States obligations under the 
NAFTA constitute "laws or regulations" within the meaning of Article XX(d).  Other than the mere 
                                                     
 
76 Vienna Convention on the Law of Treaties, Art. 31(1). 
77 United States responses to Panel questions, paras. 72-74; United States' second written submission, 
paras. 44-46. 
78 United States second submission, paras. 47-48.  WT/DS308/R 
 Page 67 
 
 
 assertion that "laws" as used in Article  XX(d) includes international agreements79, the only support 
Mexico offers is that Article 38 of the Intern ational Court of Justice (ICJ) Statute includes 
"international conventions" as a source of "international law"80, that "treaties" like "laws" create legal 
obligations81, and that paragraphs (b) and (g) of Article XX are not limited to measures relating to 
"policies in respect of things located or actions occurring within the territorial jurisdiction of the 
Member taking the measure."82  The latter of these arguments is e ssentially irrelevant.  The question is 
not whether the measure at issue relates to actions occurring outside the territorial jurisdiction of the 
Member taking the measure.  In the disputes cited by Mexico83, the measure at issue was a domestic 
law applied within the jurisdiction of the Member taking the measure, and none of these disputes, of 
course, was interpreting "laws or regulations" under Article XX(d).  Rather, the question is whether 
Article XX(d) applies to obligations owed by anothe r Member under an international agreement.   It 
does not.  The reference to the ICJ Statute likewise mi sses the point and for the same reason.   Mexico 
has yet to demonstrate that the phrase "laws or regulations" means or includes "international law" or that the creation of "legal obligations" is  synonymous with the word "laws."   
4.350  In particular, whatever is included in the sc ope of "international law," there is a textual 
difference between the words "international law" and the word "laws" which, of course, is the actual 
word used in Article XX(d).   In Article XX(d) and throughout the WTO Agreement, the word "laws" 
is used  to refer to domestic laws.
84   By contrast, in the two instances where the WTO Agreement 
references the words "international law" – in Ar ticle 3.2 of the DSU and Article 17.6 of the 
Antidumping Agreement – the word "law" appears in  the singular and is proceeded by the word 
"international."   As noted in the United States sec ond submission, the Spanish and French texts of the 
Agreement use entirely different words to refer to "i nternational law" as contained in Articles 3.2 and 
17.6, than they do to refer to "laws" as contained in Article XX(d).85   To borrow a quote from 
Mexico's second submission and Mexico 's opening statement at this meeti ng: "[A] treaty interpreter is 
not entitled to assume that the use of different words in a treaty was merely inadvertent or 
'accidental.'"86 
4.351  Moreover, "laws" as it appears in Article XX( d) is used in conjunction with the word 
"regulations."  As the United States has explained,  "regulations" are defined as instruments "issued by 
various governmental departments to carry out the intent of the law."87  Thus, a reading of the phrase 
"laws or regulations" to mean the domestic laws or  regulations of the Member applying the measure 
at issue attributes the same scope to the word "law s" as it does to the word "regulations."  Mexico's 
reading, on the other hand, creates an asymmetry be tween the scope of the word "laws" and the word 
                                                      
79 Mexico's first written submission, para. 118; Mexico's second written submission, para. 71. 
80 Mexico's responses to Panel questions, p. 13 (WTO translation); see also  Mexico's second written 
submission, para. 71 (citing Article 38 of the ICJ Statute). 
81 Mexico's second written submission, paras. 69-72 , 77-78; Mexico's responses to Panel questions, 
p. 13 (WTO translation). 
82 Mexico's second written submission, paras. 74-76 ; Mexico responses to Panel questions, p. 13-14 
(WTO translation). 
83 Mexico's second written submission, paras. 74-76  (citing US – Shrimp ); Mexico's responses to Panel 
questions, p. 13-14 (WTO translation) (citing US – Shrimp ). 
84 See, e.g., Marrakesh Agreement Establishing the WTO, Art.  XVI:4 ; GATT Arts. VII:1, VIII:3 and 
X:1; General Agreement on Trade in Services (GATS) Arts. V:3, VI:3, XXVIII(k) and Annex on Telecommunications, para. 3(d);  Agreement on Import Licensing Procedures, Art.  8.2; Agreement on the 
Implementation of Article VII of the General Agreement on Tariffs and Trade 1994, Ar t. 3.2; AD Agreement, 
Art. 18.5; Agreement on Rules of Origin, passim; Agreem ent on Trade-Related Aspects of Intellectual Property 
Rights (TRIPS), preamble, Arts. 3.2, 8.1, 40.2, 63.1,63.2, and 65.3; Agreement on Preshipment Inspection, 
passim. 
85 United States' second written submission, note 72. 
86 Mexico's second written submission, para. 50 (citing the Appellate Body in EC – Hormones ). 
87 United States responses to Panel questions, para. 71. WT/DS308/R 
Page 68  
 
 "regulations" as used in Article XX(d).  Under Mexi co's reading, only the former captures instruments 
that are not solely domestic in scope. 
4.352  Mexico's argument that international agreements create "legal obligations" is likewise without 
merit.
88  The mere fact that international agreements  create "obligations" between States, that are 
referred to as "legal," does not address the ques tion of whether obligations  under an international 
agreement – whether legal or otherwise – fall within  the scope of the phrase "laws or regulations" in 
Article XX(d).   Mexico has not demonstrated th at "legal obligations" assumed by the United States 
under the NAFTA constitute "laws" within the meani ng of Article XX(d).  In this regard, the United 
States points out that in the United States, interna tional trade agreements, such as the NAFTA and the 
WTO Agreement, are not laws and are not enforceable in United States courts.89  That interested 
parties in the United States may ask the United States Trade Representative to seek our trading 
partners' compliance with those agreemen ts, contrary to Mexico's suggestion90, does not make those 
agreements "laws."  
4.353  Rather than demonstrate that the phrase "laws or regulations" means or includes "international 
law" or international agreements, Mexico, instead , argues that the United States "must explain why 
the term 'laws' as used in Article XX (d) cannot include international law."91  Mexico forgets its 
burden of proof.  It is Mexico's burden, as the pa rty asserting the defence, to establish that its tax 
measures qualify as measures "necessary to secure compliance with laws or regulations" within the meaning of Article XX(d).  Throughout these proc eedings, however, Mexico has been unable to 
demonstrate that obligations owed Mexico under an international agreement constitute "laws or 
regulations."  Without such a demonstration, Me xico cannot justify its tax measures by way of 
Article XX(d). 
4. Article XX(d) – "necessary to secure compliance" 
4.354  Despite being unable to demonstrate that "law s or regulations" actually means or includes 
international agreements, Mexico makes much of its allegedly exhaustive efforts to resolve the 
dispute it has with the United States over mark et access for cane sugar under the NAFTA.  On the 
basis of these efforts, Mexico insists that its tax measures are "necessary to secure compliance" and in 
keeping with the chapeau to Article XX.   As th e United States explained in its second submission and 
responses to questions, these efforts do not render Mexico's tax measures "necessary" or designed to 
"secure compliance" within the meaning of paragra ph (d); they also do not mean that Mexico's tax 
measures are applied in a manner that  is consistent with the chapeau  to Article XX.  Rather than 
repeat what was said in our earlier submissions, th e United States will focus on two points regarding 
Mexico's second submission.   
4.355  The first relates to Mexico's insistence that its  tax measures "relate[] virtually exclusively to 
the United States" and are "direct ed against the United States."
92   To support this assertion, Mexico 
explains that most imports of HFCS and soft dri nks come from the United States and "arose under the 
NAFTA."93  Mexico then concludes that its tax measu res are, therefore, a response to the United 
States "refusal" to resolve the NAFTA sugar dis pute.  The United States presumes Mexico included 
this point in response to the United States point that breaching obligations owed WTO Members other 
than the United States cannot be necessary to secu re United States compliance with the NAFTA.94   
                                                      
88 Mexico's second written submission, paras. 69-72, 77-78. 
89 Corus Staal BV v. United States , CAFC Slip Op. No.04-1107 (Jan. 21, 2005) at 9. 
90 Mexico's second written submission, para. 78. 
91 Mexico's second written submission, paras. 71, 73. 
92 Mexico's second written submission, paras. 3, 81. 
93 Mexico's second written submission, para. 81. 
94 See United States' second written submission, paras. 59, 65.  WT/DS308/R 
 Page 69 
 
 
 Mexico's response, however, incorrectly assumes th at a measure may avoid a breach of Article III 
simply because it affects only a small amount of trade.  To quote the Appellate Body:  
"Article III obliges Members of the WTO to provide equality of competitive 
conditions for imported products in relation to domestic products .   ... [I]t is irrelevant 
that 'the trade effects' of the tax diffe rential between importe d and domestic products, 
as reflected in the volumes of imports, are insignificant or even non-existent;  
Article III protects expectations not of any particular trade volume but rather of the equal competitive relationship betw een imported and domestic products."
95 
Regardless of the share of Mexican HFCS imports formerly accounted for by products of Members 
other than the United States, Mexico's tax measure s would still treat the products of those other 
Members less favourably than the products of Mexi co, in violation of Article III of the GATT.  
Therefore, Mexico still has not answered the question why such less favourable treatment of other 
Members' products  is necessary to secure United States compliance with the NAFTA.  
 4.356  In pointing out that its tax measures are targeted  "virtually exclusively" at the United States, 
Mexico appears to state that its  tax measures also discriminate de facto  against imports from the 
United States vis-à-vis  imports from other countries.  Apparently Mexico is conceding a breach of 
Article I of the GATT 1994, as well as Article III in this dispute, although Article I is not within this Panel's terms of reference.
96 
4.357  The second point is that Mexico continues to be unable to explain why the discrimination 
imposed on imported HFCS as a result of Mexico's ta x measures is necessary to secure United States 
compliance with the NAFTA.  This owes to the fa ct that Mexico cannot explain why stopping the 
displacement of Mexican cane sugar by imported HFCS  is anything more than a means to protect its 
cane sugar industry.  In other words, while Mexico  attributes much harm to its cane sugar industry 
because of the displacement of cane sugar by imported HFCS, Mexico has yet to explain how 
stopping this displacement through its discriminatory tax measures would result in United States 
compliance with alleged NAFTA obligations.  Even greater opportunities to export "displaced" 
Mexican cane sugar are merely another means to aid Mexico's cane sugar industry; they are not means 
to secure United States compliance with alleged NAFTA obligations.  In short, Mexico has explained why it believes helping its cane suga r industry is necessary.  It has also explained how measures 
which stop or counteract the displacement of can e sugar may contribute to this.  Yet, neither 
explanation addresses why Mexico's tax measures co nstitute measures to secure compliance with the 
NAFTA, much less necessary ones. 
4.358  The closest Mexico comes to stating why it be lieves its tax measures are "necessary to secure 
compliance" with the NAFTA, is its contention th at, by hurting United States exports of HFCS 
through its discriminatory tax measures, Mexico will "induce" sweetener producers to come to the 
"negotiating table."
97  Even if Mexico's contention were correct, inducing  sweetener producers  to 
engage in negotiations is not the same thing as securing United States compliance with the NAFTA. 
4.359  Moreover, the United States points out that Mexico 's tax measures could not have even been 
"necessary" to stop the displacement of Mexi can cane sugar by imported HFCS as a result of 
"preferential access" for HFCS under the NAFTA.98   This is because Mexico did not provide such 
preferential access at the time it imposed its tax me asures.   Rather, from 1997 through May of 2002, 
Mexico imposed WTO- and NAFTA-inconsistent  anti-dumping duties on HFCS from the United 
                                                      
95 Appellate Body Report on Japan – Alcoholic Beverages II , p. 16, DSR 1996:1, 97, at 109. 
96 GATT Art. I:1. 
97 Mexico's second written submission, para. 83. 
98 Mexico's first written submission, paras. 5-6, 124. WT/DS308/R 
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 States.
99  In other words, Mexico has already adversel y altered the balance of rights and obligations 
under the NAFTA, which was negotiated as a set of mu tual concessions.  Now Mexico is withdrawing 
concessions under the WTO, concessions which we re never negotiated on the basis of other 
concessions granted under the NAFTA. 
5. Issues relating to Mexico's "preliminary ruling" request 
4.360  Aside from its Article XX(d) defence, Mexico raises a number of other issues in the course of 
these proceedings that are simply not relevant to r esolution of this dispute.  In its second submission, 
for example, Mexico continues to argue points only rele vant – if at all – to its already-rejected request 
for a preliminary ruling.  These points include Mexi co's assertions that "this is a NAFTA dispute100," 
that a finding of WTO-inconsistency will pr ejudice on-going or future NAFTA proceedings101, that 
the Panel need not issue findings on the consistenc y of Mexico's tax measures with Mexico's WTO 
obligations102, and that the United States does not have the right, or does not deserve, to bring this 
dispute before the WTO.103  The Panel has already considered these issues in rejecting Mexico's 
request for a preliminary ruling and in concluding that the Panel "does not have the discretion, as 
argued by Mexico, to decide not to exercise its ju risdiction in a case that has been properly brought 
before it."104  These issues also do not bear on whether Mexico's tax measures are consistent with 
Article III or justified under Article XX(d).  They ar e, therefore, not issues that this Panel needs to 
consider further. 
6. "General principles of international law" 
4.361  Mexico has also attempted to justify its tax measures under "general principles of 
international law."  The matter in dispute, howev er, concerns the consistency of Mexico's tax 
measures with Mexico's obligations under the WTO Agreement – namely, whether Mexico's tax 
measures are consistent with Article III and, if not, whether they are justified under Article XX(d).  
Issues Mexico raises concerning justifications fo r its tax measures under "general principles of 
international law" are, therefore, not issu es this Panel need, or should, resolve.  
4.362  That said, Mexico's suggestion that its tax measures are somehow justified as a matter of 
"general principles of international law" – although still irrelevant to the consistency of Mexico's tax 
measures with Mexico's WTO obligations – does raise some concerns which merit a couple of brief remarks.   
4.363  First, the WTO dispute settlement system exists  to resolve WTO disputes, that is, disputes 
over Members' rights and obligatio ns under the covered agreements.
105  Accordingly, when a WTO 
panel is established, it is established to examine th e relevant provisions of th e covered agreements and 
"to make such findings as will assist the DSB in making the recommendations or in giving the rulings 
provided for in those agreements ."106  A WTO panel's mandate simply  does not extend to determining 
the rights and obligations of countries under general principles of international law.  Thus, in this 
dispute, the Panel's mandate is limited to determin ing the consistency of Mexico's tax measures with 
Mexico's obligations under the c overed agreements.  Just as the Panel's mandate does not extend to 
                                                      
99 See United States first written submission para. 14-18. 
100 See, e.g., Mexico's second written submission, paras. 4, 7. 
101 See, e.g., Mexico's second written submission, paras. 6, 8. 
102 Mexico's second written submission, paras. 48-57. 
103 See, e.g., Mexico's second written submission, paras. 8. 
104 Letter from the Chairman of the Panel to Representatives of the Parties (18 January 2005) at 2. 
105 DSU Arts. 1.1, 3.2 and 3.4. 
106 DSU Art. 7.1(emphasis added); see also DSU Art. 11.  WT/DS308/R 
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 examining United States obligations under the NAFTA107, it does not extend to examining Mexico's 
rights under general principles of international law. 
4.364  Second, exceptions to WTO rules are expressly st ated in the text of the WTO Agreement.  
Yet, nothing in the text of the WTO Agreement provides that a measure that is otherwise WTO-
inconsistent might be justified under the WTO Agreement so long as it comports with some 
(unspecified) general principles of international law.   Moreover, there is no basis for a panel to graft 
general principles of international law onto the rights and obligations agreed upon by WTO Members 
and expressed in the text of the WTO Agreement.  In  fact, the Appellate Body has already rejected the 
notion that a principle of international law – whet her recognized or not – mi ght be used as grounds for 
justifying measures that are otherwise inconsiste nt with a Member's obligations under the WTO 
Agreement.108  
4.365  Mexico's reliance on the Appellate Body reports in EC – Bananas III, US – Wool Shirts and 
Blouses, India – Patents (US)  and Canada – Aircraft  in this regard are inapposite.  Although the 
Appellate Body did refer in those reports to non- WTO tribunals' practice regarding certain procedural 
issues, it did not rely on that practice as the basis fo r its findings.  Instead, in each of the reports cited 
by Mexico109, the Appellate Body concluded that the te xt of the DSU and other provisions of the 
WTO Agreement supported the panel's findings with resp ect to the relevant procedural issue, noting, 
in addition, that non-WTO tribunals had similarly viewed the issue.110  These reports do not support 
Mexico's contention that its tax measures – which are inconsistent with Article III and not excepted 
under Article XX – are nevertheless justified under the WTO Agreement due to a "recognized general 
principle of international law."  
4.366  Mexico's contention likewise does not find support in  its out-of-context citations to statements 
made by the United States in connection with the Air Services Agreement of 1946111, the GATT 
1947112, the NAFTA113, or another WTO dispute settlement proceeding.114  Whatever statements the 
United States may or may not have made in these cont exts – over half of which pre-date United States 
obligations under the WTO Agreement – such stat ements cannot be used as grounds to create new 
exceptions to WTO rules.  
4.367  In addition to its defence under Article XX(d) and assertion of a "right to take unilateral 
action" under general principles of international law,  Mexico contends – in what appears to be an 
argument recycled from its failed request for a prel iminary ruling – that the Panel need not limit its 
recommendations in this dispute to a request that Mexico bring its WTO-inconsistent tax measures 
                                                      
107 United States responses to Panel questions, para. 12. 
108 Appellate Body Report on EC – Hormones , paras. 120-125. 
109 Mexico's second written submission, para. 17. 
110 Appellate Body Report on  EC – Bananas III , paras. 10, 132-138 (considering representation by 
private counsel and standing and referring to DSU Article 3.7 and GATT Article XXIII); Appellate Body Report 
on US – Wool Shirts and Blouses , pp. 14-17, DSR 1997:I, 323, at 335, (considering the burden of proof and 
referring to DSU Article 3.8 and GATT Ar ticle XXIII); Appellate Body Report on  India – Patents (US) , 
paras. 64-71 (considering the ability to review municipal law and referring to the panel’s "task in determining 
whether India's [measures] were in conformity with I ndia's obligations under Article 70.8(a) of the TRIPS 
Agreement"); Appellate Body Report on  Canada – Aircraft , paras. 197-206 (considering adverse inferences and 
referring to the panel’s mandate, DSU Article 11 and SCM Agreement Article 4). 
111 Mexico's second written submission, para. 32 (regar ding a 1978 dispute over the right to operate a 
West Coast to Paris flight via London). 
112 Mexico's second written submission, para. 23, 37- 38 (regarding a 1989 statement in connection with 
a dispute over hormone-treated beef). 
113 Mexico's second written submission, para. 33-35 (regarding a 1994 memorandum of 
understanding); id. paras. 28-30 (regarding a 1996 dispute over agricultural products). 
114 Mexico's second written submission, paras. 40-45 (regarding US – Section 301 Trade Act ). WT/DS308/R 
Page 72  
 
 into compliance.
115  Mexico is incorrect.116   Panel recommendations are limited to recommendations 
that WTO-inconsistent measures be brought into  conformity with the covered agreements.117  T h i s  
limitation is explicitly provided for in Article 19. 1 of the DSU which provides: "Where a panel ... 
concludes that a measure is inc onsistent with a covered agreement, it shall recommend that the 
Member concerned bring the measure into  conformity with that agreement." 
7. Conclusion 
4.368  Therefore, in this dispute, for the reasons al ready stated and in its prior submissions, the 
United States respectfully requests the Panel to find that Mexico's tax measures are inconsistent with 
Articles III:2 and III:4 of the GATT 1994 and not jus tified under Article XX(d), and recommend that 
Mexico bring its WTO-inconsistent tax measures in to conformity with its obligations under the GATT 
1994. 
K. OPENING STATEMENT OF MEXICO AT THE SECOND MEETING OF THE PANEL  
1. Introduction 
4.369  Mexico will focus on the essence of the disput e as it has developed through the parties' 
written and oral submissions and their responses to the questions posed by the Panel.  At the heart of 
this case lies the following question:   
"What can a WTO Member that seeks to secure compliance with a free trade 
agreement do when another Party blocks dispute settlement under the said agreement 
even while it acknowledges the exis tence of a legitimate dispute?" 
4.370  Mexico's response is that in su ch extraordinary circumstances, international law, including the 
WTO Agreement, does not preclude a WTO Member from taking measures to secure the other 
Member's compliance with its treaty obligations an d to rebalance the situation under the free trade 
agreement.   
4.371  The United States' position in this case has been ambiguous.  When it is the complainant , its 
position is clear:  it claims a legal right not only to  take counter-measures, but to do so prior to 
submitting the matter to dispute settlement.   
4.372  In this case, however, the United States finds itself in the position of being the obstructing 
respondent and does not wish to admit that its long-standing view as to the rights of the obstructed complainant State must apply equally when it is the recalcitrant party.  Yet it is obvious that, if the 
United States has this right as the obstructed compla inant, it cannot logically contend that it does not 
accrue to another State that is obstructed by the United States.  
4.373  This is why the United States avoided answering the question that Mexico put to it at the end 
of the first substantive meeting with the Panel.  The obvious conclusion is that the United States 
agrees with Mexico's view that a NAFTA party has the legal right to take action to protect its interests 
when another Party has obstructed NAFTA's dis pute settlement process.  But the United States does 
not want to admit to that in writing. 
4.374  Nevertheless, as Mexico show ed in its second written submissi on, there is evidence from the 
NAFTA that confirms that this is the United St ates position.  Mexico reviewed that evidence at 
                                                     
 
115 Mexico's second written submission, paras. 62-64. 
116 See also  United States opening statement at the first meeting of the Panel, para. 12. 
117 DSU Art. 19.1.  WT/DS308/R 
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 paragraphs 27 to 36 of its second submission.  Me xico directs the Panel both to the United States 
tariffs imposed in response to Canada 's tariffs in the NAFTA dispute on Tariffs Applied by Canada to 
Certain US-Origin Agricultural Products  and to the Memorandum of Understanding signed by two 
United States cabinet secretaries who undertook not to "take countermeasures inconsistent with the 
NAFTA or the GATT" during a 12-month period.  That  evidence is fully cons istent with the United 
States statement to the GATT Council to which Mexi co referred in its first written submission 
(paragraph 126). 
4.375  The measure at issue resulted from Mexico's  complaint in the context of NAFTA that: 
 – the United States failed to comply with its NAFTA market access commitments for 
sugar from Mexico; 
 
 – the United States' refusal to admit Mexi can sugar into its market caused a serious 
sugar surplus in the Mexican market that le d to severe financial stress in the Mexican 
sugar industry; 
 
 – US-originating HFCS made substantial in roads into the Mexican  sweeteners market, 
displacing sugar from important sectors and further contributing to increasing the sugar surplus; 
  – Mexico was forced to take other measures at considerable public expense to alleviate 
the impact of the surplus in its market;   
 
 – throughout this time, Mexico pressed for a resolution of the dispute concerning its 
NAFTA rights by all means, including recourse to the specific dispute settlement mechanism and to negotiations and bilateral consultations; 
 
 – the United States steadfastly refused to permit the NAFTA dispute settlement system 
to discharge its function of assisting the disputing parties in achieving a mutually satisfactory solution to the dispute. 
 4.376  After exhausting all alternative means, the Mexican Congress adopted the measure challenged 
by the United States in this proceeding.   
4.377  The United States has been forced to admit that there is a genuine dispute between the parties 
that has not been resolved, but insists that this is not relevant to the issues before the Panel.  In the 
face of all of the evidence and the fact that it has been almost five years si nce Mexico requested the 
establishment of an arbitral panel under NAFTA Ch apter Twenty – which request is still pending – 
the United States now claims that it has not impeded the operation of this dispute settlement 
mechanism. It contends that Mexico has simply "a ttempted to change the subject" by informing the 
Panel of the existence and relevance of the larg er dispute within the NAFTA (United States second 
written submission, paragraph 1).  
4.378  These contentions are not borne out by the reco rd.  Mexico submits that the NAFTA dispute 
is highly relevant to the issues before this Panel. 
4.379  Indeed, the United States goes even further.  In  its most recent written submission, the United 
States affirms that there is no link between its HFCS case and Mexico's claim with regard to the 
market access commitments for Me xican sugar.  For example, in paragraph 64 of its second written 
submission, the United States notes:   WT/DS308/R 
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 "It is difficult to understand how this ha rm imposed on HFCS and soft drinks and 
syrups sweetened with HFCS is designed to 'secure compliance' with unrelated provisions under the NAFTA on market access for sugar."   
4.380  With all due respect, this is an absurd statem ent.  As Mexico showed in its first written 
submission, the United States Trade Representative himself, Michael Kantor, established the link 
between HFCS and sugar in 1993, when he proposed  negotiating the exchange of letters.  Paragraphs 
37 to 51 of Mexico's first written submission refer to that and Mexi co submitted the letter in which 
that link is established in this proceeding: 
" ...  I propose that we exchange side letters to clarify that, in determining a party's 
'net production surplus' status, sugar w ill be considered to include raw or 
refined sugar derived directly or indir ectly from sugar cane or sugar beets, 
liquid refined sugar, and high fructose corn sweetener … ".
118 
4.381  Moreover, the United States claim is based entir ely in the full substitutability of HFCS for 
sugar in certain industrial uses.  The United Stat es Department of Agriculture's market studies 
corroborate this:   
" ...  
The Mexican sugar industry wants the US suga r quota to be higher, in agreement with 
the higher Mexican sugar production.  Basi cally, the Mexican sugar industry is not 
against US HFCS imports into Mexico;  wh at they want is to gain access for more 
than the 25,000 MT of sugar currently a llowed under the TRQ for Mexico.  With the 
high levels of imported HFCS and higher levels of sugar pr oduction, the sugar 
industry claims there is danger of a closing of 15 to 20 mills, resulting in layoff of about 100,000 workers."
119   
4.382  In Mexico's opinion, it is an affront to this Panel to deny the link between HFCS and sugar, 
when the United States was the first to establish it.  
4.383  In this submission, Mexico will elaborate upon these issues.  It will also respond to the main 
arguments that are invoked by the United States in  its rebuttal submission against Mexico's defence 
under Article XX(d) of the GATT 1994. 
2. The relevance and status of the NAFTA dispute 
4.384  Mexico proposes to start by making a few point s about the approach taken by the United 
States in this case, with particular reference to its rebuttal submission. 
4.385  First, the United States continues to wrongly argue that the adoption of the measures by 
Mexico was to protect the domestic production of cane sugar.120  Mexico insists, and it should now be 
perfectly clear, that the intent behind Mexico's me asures was to secure the United States' compliance 
with its NAFTA obligations while it rebalanced its  market.  But for the United States' refusal to 
resolve the dispute through the NAFTA mechanism,  the Mexican measures would never have been 
necessary.   
                                                      
118 Mexico's first written submission, para. 41. 
119 Mexico's first written submission, para. 61. 
120 United States second written submission, para. 16.  WT/DS308/R 
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 4.386  The Panel should be aware that this was not in a situation where, with no treaty-based 
expectation of being able to export sugar surplu ses to the United States market, Mexico generated a 
surplus.  Quite the contrary:  th e bilateral trade regime negotiated in the NAFTA foresaw the Mexican 
sugar industry's modernization (after the priva tization that was taking place while the NAFTA was 
being negotiated) and expressly contemplated that any surpluses generated c ould be exported to the 
United States market.  Both parties were fully c onscious of the competition between sugar and HFCS, 
and that HFCS access to the Mexican market would contribute to generating surpluses.  The regime 
established in NAFTA Annex 703.2 regarding trade in  sugar and syrups deals exclusively with the 
sugar surplus exports during the transition period.   
4.387  The United States subsequently refused to allow the agreed access to Mexican sugar, in order 
to protect its own sugar industry from competing with Mexican sugar, yet nevertheless sought to 
ensure that HFCS, either US-originating or loca lly produced from United States corn, had free access 
to the Mexican market, without regard to the consequences for the Mexican sugar industry.   
4.388  Mexico submitted the matter to the NAFTA dis pute settlement mechanism, but the United 
States obstructed its operation by refusing to appoin t panellists and even fo rbade the United States 
Section of the NAFTA Secretariat – in charge of administering the proceedings – to do so when 
Mexico requested the appointment of panellists.  Th e United States now seeks to convince this Panel 
that it has not obstructed the operation of dispute settlement proceedings and that it is seemingly 
normal that some five years later the proceedings are still in the panellist appointment stage. Under 
such circumstances the best answer it can offer to this Panel is that all of this is simply irrelevant to 
the claim it has submitted under the DSU.  
4.389  The Panel should be aware of the fact that during the years before the Mexican Congress 
adopted this tax over 3 million tons of HFCS were sold into the Mexican market, thereby exacerbating 
the effect of the NAFTA-induced surplus on the Mexican industry  and cane sugar sector.  What 
segment of the Mexican market has HFCS taken?  The soft drinks segment. 
4.390  The IEPS tax on soft drinks sweetened with sweeteners other than cane sugar constitutes a 
temporary response to the United States action aime d at a rebalancing of the situation pending a 
resolution of the bilateral sweeteners trade dis pute.  When the facts surrounding the measures' 
enactment are taken into account, it cannot reasonably be maintained that the purpose of the IEPS tax 
is simply to protect the Mexican sugar producers from import competition. 
4.391  The United States did not bring this factual context to the Panel's attention.  Mexico urges the 
Panel to re-read the United States' first written s ubmission and see just how much now undisputed 
factual context was omitted when it brought this case forward.  
4.392  Once it was confronted with all the facts, the United States simply made superficial assertions 
about the rightness of its position under the NAFTA  while simultaneously urging the Panel not to 
look at the underlying wider dispute.   
4.393  Mexico requests the Panel to take note of th e extensive documentary evidence that it has 
adduced in this proceeding.  Mexico's first wr itten submission contains 29 annexes which include 
contemporaneous letters regarding the establishm ent of the NAFTA arbitral panel.  Mexico 
meticulously sought to demonstrat e through contemporaneous documents how the dispute arose, what 
steps Mexico took to resolve the dispute in acco rdance with the procedures set out in the NAFTA, 
how the United States blocked Mexico's efforts through its acts and omissions, and the serious 
consequences of the United States' obstruc tionism for the Mexican productive sectors. 
4.394  None of that documentary evidence was contest ed, still less rejected, by the United States. WT/DS308/R 
Page 76  
 
 4.395  Mexico's first written submission set out Mexico's  efforts to resolve the underlying dispute in 
great detail and in a carefully documented fashion.   Mexico does not have to rehearse them here. 
4.396  When it was finally cornered on its steadfast re fusal to subject itself to the NAFTA dispute 
settlement mechanism, the Unite d States weakly claimed that the NAFTA parties are presently 
"engaged in the third stage" of the dispute settle ment process, namely, the panellist selection stage.
121  
This is simply not true.  After having forbidden its NAFTA Secretariat Sec tion to appoint panellists, 
the United States took no further action.  Yet now the United States cannot bring itself to admit that it 
has obstructed a dispute settlement mechanism in precisely the manner for which it has criticized so 
many other States. 
4.397  Mexico has been placed in an extraordinar ily difficult situation by the United States 
manipulation of the dispute settle ment mechanisms of the NAFTA and WTO.  But the Panel must 
recognize that Mexico submitted to its jurisdicti on, and has presented its legal arguments in good 
faith.  Further, Mexico has been scrupulous in presenting the underlying facts to the Panel.  The 
United States has not disputed those underlying f acts, and has not submitted any evidence to refute 
Mexico's evidence.   
4.398  So Mexico is greatly troubled when during th e first substantive meeting and in its second 
written submission the United States makes statemen ts such as "The United States is currently 
engaged in the third stage" of the NAFTA dispute se ttlement procedure.  The uncontradicted evidence 
is that it has been almost five years since Mexico requested the formation of an arbitral panel under 
NAFTA Chapter Twenty and that the United States re fused to cooperate in naming arbitrators.  The 
United States even gave instructions to its NA FTA Secretariat Section to abstain from appointing 
them.  For the United States now to argue that the dispute settlement proceeding is still ongoing, and 
that it has complied with its NAFTA dispute settlement  obligations, is not only false but demeaning to 
the integrity of this arbitration proceeding. 
4.399  The Panel should reject the United States' attemp t to argue that it is, in good faith, actually 
trying to allow the NAFTA panel to discharge its duty.   The Panel should also reject the United States' 
arguments that its own conduct is irrelevant to asserting its legal rights in this forum.  It should reject 
its request to ignore the circumstances of the wi der dispute arising under the NAFTA and its own 
actions in this regard.  It should also reject th e suggestion that there is no link between sugar and 
HFCS and that the measure at issue did not have  the purpose of securing United States' compliance 
with the NAFTA.  Lastly, the United States' hope that  this Panel will dignify and indeed reward its 
intransigence and obstructive conduct in the contex t of international cooperation should be rejected. 
4.400  Mexico agrees that this Panel has no jurisdic tion to decide whether the United States has 
failed to comply with its market access commitm ents or indeed whether Mexico's rebalancing 
measures are justified under the NAFTA.  Mexico has not asked this Panel to decide the NAFTA 
dispute.  The point is simple:  it is one thing to  say that a WTO panel cannot decide a dispute under a 
treaty different from the "covered agreements" and is  quite another thing to say that a WTO panel 
cannot consider the facts of a dispute arising under another treaty that has also given rise to the 
dispute before it.  Mexico submits that the Pane l can and must consider the totality of the facts 
relating to the measure that is the subject of this di spute.  These facts explain the history of the dispute 
between the two parties, Mexico's good faith efforts to resolve it, and the failure of those efforts 
owing to the United States' acts and omissions.  The United States has not and cannot take issue with the facts as a whole.  The Panel to take these fact s into consideration for a variety of reasons:   
 – to explain the intent of the measures;   
 
                                                     
 
121 United States second written submission, para. 66.  WT/DS308/R 
 Page 77 
 
 
  – to explain the serious prejudice that Mexico is suffering as a result of United States 
forum shopping while continuing to obstruct the resolution of Mexico's grievance in the NAFTA forum;   
  – to explain that Mexico has a bona fide position that the measures can be justified 
under the NAFTA and that the entire dispute could be resolved there;   
  – to support Mexico's position that th e measures can be justified under GATT 1994 
Article XX(d);  and  
 
 – because all the facts should be taken in to consideration by the Panel when it 
formulates recommendations for the resolution of this portion of the dispute. 
 4.401  As Mexico has stated, the United States' c onduct is highly relevant to the Panel's 
consideration of whether, through the measures at i ssue, Mexico is justifiably seeking to secure the 
United States' compliance with the NAFTA.  In evalua ting that issue, the Panel can consider the rules 
of customary international law and general principles of law even if they are not expressly set out in 
the WTO "covered agreements".   
4.402  Pursuant to Article 31(3) of the Vienna Conven tion on the Law of Treaties, in interpreting the 
WTO "covered agreements" (including the GATT 1994) , this Panel must take into account "any 
relevant rules of international law applicable in  the relations between the parties".  Clearly, the 
NAFTA sets out such rules for the relations between  Mexico and the United States which are relevant 
to the present dispute.  Consequently, the Pane l is entitled to take notice of evidence supporting 
Mexico's arguments.  
4.403  For the reasons set out above, Mexico re quests the Panel to make the following 
determinations of fact – which it will address furthe r below – whatever its resolution on the merits of 
this dispute may be: 
 – Mexico and the United States negotiated the sweeteners bilateral preferential trade 
regime which includes HFCS and sugar, pr oducts that compete in certain market 
segments; 
  – a legitimate broader dispute exists betw een Mexico and the United States regarding 
access of Mexican sugar to the United States market; 
  – Mexico has exhausted all efforts to resolv e that dispute through diplomatic channels, 
bilateral consultations and negotiations , and through NAFTA's Chapter Twenty 
dispute settlement mechanism; 
 
 – notwithstanding the fact that Mexico  requested the establishment of a NAFTA 
arbitral panel in 2000, to date the United  States has not appointed panellists and has 
thus frustrated Mexico's attempt to resolve its grievances under the NAFTA; 
  – the tax measure at issue is a response to  the United States' refusal to submit to 
NAFTA dispute settlement, one which seeks to  induce the United States to do so as 
well as to rebalance Mexico's market which has been affected by the sugar production 
surplus resulting in part from United States HFCS imports and HFCS production from corn imported from the United States;  and 
 
 – the United States has stated that under international law it can validly adopt counter-
measures when another State refuses to submit to dispute settlement mechanisms. WT/DS308/R 
Page 78  
 
  
4.404  Lastly, in considering the applicability of th e provisions of the GATT 1994 in this dispute 
pursuant to Article 11 of the DSU, Mexico urges the Panel to bear in mind the following general principle of international law enunciated by th e Permanent Court of International Justice: 
"[O]ne party cannot avail himself of the fact that the other has not fulfilled some 
obligation, or has not had recourse to some means of redress, if the former party has, 
by some illegal act, prevented the latter  from fulfilling the obligation in question, or 
from having recourse to the tribunal wh ich would have been open to him ."122 
4.405  The United States has violated its commitment  to submit to NAFTA dispute settlement and 
thereby prevented Mexico from having its sugar market access rights clarified.  It has then criticized 
Mexico for unilaterally determining that the Un ited States has violated the NAFTA without having 
first obtained a panel report in its favour.  
4.406  The United States has also attempted to draw a line between this slice of the dispute and the 
larger NAFTA dispute.  It says that whatever has occurred under the NAFTA is entirely separate from 
the matter before this Panel.  It suggests that con sequently this Panel has no right even to take those 
facts into consideration here.  The Un ited States' position is plainly wrong. 
4.407  Mexico would ask the Panel to refer to th e opening paragraph of NAFTA Article 2005 which 
permits a complainant to settle "disput es regarding any matter arising under both  this Agreement", 
i.e., NAFTA, "and the General Agreement on Tariffs and Trade  … in either forum".  Thus, the text of 
the NAFTA makes it clear that disputes like th is one arise under both agreements, not one or  the 
other.  The dispute is not separable from the NAFTA.  Nor is it one which arises exclusively under the 
WTO. 
4.408  Mexico has already pointed out that the only WT O provision at issue in this case, Article III 
of the GATT 1994, is expressly incorporated into the NAFTA by Article 301.  In that sense, Mexico 
is thus speaking of precisely the same obligation incorporated in two agreements, the GATT 1994 and a free trade agreement signed pursuant to Article XXIV thereof. 
4.409  Mexico recognizes that this Panel cannot resolv e the NAFTA dispute, but insists that the 
Panel can take notice of it.  Ignoring these facts would reward the United States for persistently 
obstructing the operation of the NAFTA dispute settle ment mechanism by frustrating the attempt to 
resolve a legitimate dispute which it acknowledges to  exist between the parties, by forum shopping, 
and it will not contribute to achieving the main obj ective of the DSU's dispute settlement mechanism 
– that of finding a positive solution to the dispute – but rather will preserve the inequity of the United 
States conduct and the obvious prejudice suffered by Mexico.  
3. The Panel has greater flexibility to formulat e recommendations than the United States 
admits 
4.410  In its second written submission, Mexico point ed out that under the DSU the Panel has 
greater flexibility to formulate re commendations than the United States is prepared to recognize.  The 
United States simply asks the Panel to ignore its ow n actions, to find that there was a breach of the 
GATT, and to recommend that Mexico bring the measure into compliance with the GATT 1994.   
4.411  The United States devotes much time and atten tion to Article 11 of the DSU and the Panel's 
terms of reference, but does not address what th e GATT 1994 – the applicable covered agreement – 
                                                     
 
122 Chorzów Factory (Merits) Case , PCIJ. Ser. A, No. 17, p. 29. (Emphasis added).  WT/DS308/R 
 Page 79 
 
 
 actually requires a panel to do.  As Mexico noted, Articles XXII and XXIII of the GATT 1947 do not 
support the conclusion asserted by the United States.  
4.412  Article XXII did not require a panel to make a ruling of breach as claimed by the United 
States;  rather, it mandated the Contracting Pa rties "to consult with any contracting party or parties  in 
respect of any matter for which it has not been possible to find a satisfactory solution through 
consultation under paragraph 1" .  (Emphasis added).   
4.413  Similarly, Article XXIII:2 provided for the referral  of a matter (including an alleged failure of 
a Contracting Party to carry out its  obligations under the GATT or a C ontracting Party's application of 
a measure which conflicts with the provisions of the GATT) to the CONTRACTING PARTIES.  
Upon such referral, the CONTRACTING PARTIES:123 
"[S]hall promptly investigate any matter so referred to them and shall make 
appropriate recommendations  to the contracting parties which they consider to be 
concerned, or  give a ruling on the matter, as appropriate ."  (emphasis added) 
4.414  The GATT's drafters thus contemplated either  the making of "appropr iate recommendations 
to the contracting parties … concerned" or a "ruling on the matter", again, "as appropriate".  Thus:  
(i) one remedy available to the CONTRACTING PARTIES was recommendatory;  and (ii) the other, 
the possibility of a ruling, was itself made  conditional upon its appropriateness.    
4.415  Three points warrant noting:  First, Arti cles XXII and XXIII conferred discretion upon the 
CONTRACTING PARTIES (and panels ac ting at their behest).  Second, neither Article sets limits on 
the CONTRACTING PARTIES (or a panel's) power to  shape its recommendations or make a "ruling 
in the matter" in response to the facts peculiar to a pa rticular case.  To the contrary, they (or a panel) 
are to determine what is appropriate  in the circumstances.  Third, these remedies were available to the 
CONTRACTING PARTIES in situations where breach of the GATT was alleged.   
4.416  The flexibility that the GATT's drafters establishe d is preserved in the DSU:  "In the absence 
of a mutually agreed solution, the first obj ective of the dispute settlement mechanism is usually  to 
secure the withdrawal of the measures concerned if  these are found to be inconsistent with the 
provisions of any of the covered agreements" (Empha sis added.)  The inclusion of the qualifying word 
"usually" was intentional.  The DSU's dr afters could have used the mandatory " shall be  to secure the 
withdrawal …" or have amended GATT Articl es XXII and XXIII when the GATT 1947 became the 
GATT 1994, but chose not to.   
4.417  In short, it is not correct to maintain that  the only "rulings" provided for in the GATT are 
findings of breach followed by a recommendation to withdraw the measures at issue.  It is open to 
panels to make other findings in order to  secure a positive solution to a dispute. 
4.418  This is confirmed by the terms of reference that established this Panel: 
"To examine, in the light of the relevant provisions of the covered agreements cited 
by the United States in document WT/DS308/4,  the matter referred to the DSB by the 
United States in that document, and to ma ke such findings as will assist the DSB in 
making the recommendations or  in giving the rulings provided for in those 
agreements."  (emphasis added) 
                                                      
123 As practice evolved, this function was exercised by panels established by the CONTRACTING 
PARTIES. WT/DS308/R 
Page 80  
 
 4.419  Article 11 of the DSU contemplates possibilities th at the United States has chosen to ignore.  
Thus, it would be within the Panel's discretion, based on an objective assessment of the matter, to 
recommend what steps the parties should take to "s ecure a positive solution to [the] dispute".  Since 
the United States claims that it shares Mexico's disa ppointment at the parties' inability to resolve the 
larger dispute, it should welcome the recommendati on that Mexico is requesting from the Panel. 
4. The two Article III obligations at issue 
4.420  Mexico wishes to comment briefly on the Unite d States argument that the same measures 
may breach both Article III:2 and Article III:4 of the GATT 1994.
124  As a matter of WTO law, 
Mexico doubts that this is possible.  Indeed , the excerpt of the Appellate Body Report in EC – 
Asbestos  quoted by the United States does not support the proposition that there is an overlap in the 
scope of coverage of these two di stinct paragraphs of Article III.  On the contrary, it suggests that 
fiscal regulation is covered by a specific provision, namely, Article III:2, while non-fiscal regulation is covered by another provi sion, namely Article III:4.  To be sure, in the paragraph quoted by the 
United States, the Appellate Body was not even di scussing the question of whether the same measure 
could be examined under both Article III:2 and Article III:4.  It was ex amining a totally different legal 
issue, that is, the meaning of the term "like" in both provisions.  
4.421  In its responses to the questions of the Panel,  Mexico also noted that WTO jurisprudence 
actually suggests that measures taking the form of  "internal taxes or other charges" should be 
examined under Article III:2.
125  The Panel should note that the br ief comment on this legal point does 
not qualify Mexico's intention as regards addressi ng the United States' arguments under Article III of 
the GATT 1994, but is made simply because, like all other WTO Members, Mexico has a systemic 
interest in the correct interpretation of that provision. 
5. Mexico's defence under Article XX(d) of the GATT 1994 
4.422  As previously explained, irrespective of whethe r the measures at issue are inconsistent with 
Article III of the GATT 1994, Mexico believes that  they are justified under Article XX(d).  The 
allegations made by the United States against Mexico's defence warrant a response.   
4.423  At paragraph 39 of the United States' second wr itten submission, it is contended that "Mexico 
must establish and prove that it has met each of  the elements required for invocation of an 
Article XX(d) defence".  Mexico acknowledges th at as the party who has invoked an affirmative 
defence, it has the initial burden of proof on th is issue.  However, the United States is 
mischaracterizing the applicable rules on the allocati on of the burden of proof by suggesting that the 
burden of proving that its measures are saved by Artic le XX(d) rests solely on Mexico's shoulders.   
4.424  Simply put, pursuant to the well-known rules governing the allocation of the burden of proof, 
the onus is on Mexico to raise a presumption that wh at it claims is true.  In other words, Mexico's 
burden is to make out a prima facie  case that its measures are justified under Article XX(d) of the 
GATT 1994.  Once it has done so, the burden then shifts  to the United States to rebut that prima facie  
case. 
4.425  Mexico has put forward sufficient evidence a nd legal arguments to establish a prima facie  
case that its measures are justified under Article XX(d), and maintains that the United States has 
failed to rebut its arguments and evidence.  
                                                      
124 United States second written submission, para. 12. 
125 Mexico's responses to Panel questions, p. 8.   WT/DS308/R 
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 4.426  The United States' primary argument is that Mexi co attempts to construct a new Article XX 
exception by claiming that the NAFTA constitutes "laws or regulations" within the meaning of 
paragraph (d) of that provision, and that such  an exception would "fundamentally undermine the 
dispute settlement system established in the WTO Agreement".126  This doomsday scenario does not 
withstand scrutiny. 
4.427  It is wrong to say that Mexico's interpretation would offer WTO Members carte blanche  to 
breach from their WTO obligations whenever a Member  claims that obligations owed to it under any 
international agreement have not been fulfilled.  This is not Mexico's position nor is it in accordance 
with the facts of this case.  
4.428  Mexico does not contend that the mere claim of a WTO Member that another Member has 
breached an international treaty is enough to ju stify the adoption of measures that could be 
inconsistent with WTO provisions.  The Panel shou ld be aware that there is a legitimate dispute 
between the parties, as recognized by the Un ited States, regarding its NAFTA market access 
commitments and that Mexico considers that th e United States has breached those NAFTA market 
access obligations.  Nevertheless, the measure a dopted by the Mexican Congress is not simply a 
response to this claim raised by Mexico.  
4.429  Nor does Mexico request that this Panel issue a finding that the United States has breached its 
NAFTA market access commitments in order to c onclude that the measure is justified under 
GATT 1994 Article XX(d). 
4.430  The United States trivializes Mexico's position. 
4.431  There should be no doubt for this Panel that th e United States has impeded Mexico's access to 
the NAFTA dispute settlement mechan ism and, therefore, that it has made it impossible for Mexico to 
obtain a resolution of its grievance with regard to the market access conditions under that Treaty.  
There should be no doubt that Mexico has also e xhausted diplomatic channe ls, bilateral negotiations, 
and international cooperation without success.  No r should this Panel have any doubt as to the 
prejudice that the Mexican industry has suffered. 
4.432  The measure adopted by the Mexican Congress occu rred only after all other efforts had failed.  
It is not about a mere claim that the United States has breached its ma rket access obligations.  Mexico 
has plainly demonstrated that the United States has prevented it from gaining access to the dispute 
settlement mechanism.  This is not a mere allegati on and, naturally, it is not a question that can be 
resolved by a NAFTA arbitral panel.  This is a quest ion of fact that this Panel can clearly decide based 
on the evidence filed in this proceeding. 
4.433  Mexico's position is that, in such circumstanc es, the tax measure at issue is justified under 
Article XX(d) of GATT 1994. 
4.434  The United States' argument further trivializes th e application of Article XX(d), because such 
application is subject to a number of requirements.  In the first place, as in all matters affecting the 
WTO, a Member's invocation of an exception is subject to the dispute settlement mechanism.  
Second, contrary to the United States' assertion, Artic le XX(d), by its own terms, is restricted to 
measures necessary to secure compliance with those la ws or regulations which are not inconsistent 
with the provisions of the GATT 1994. 
4.435  The mere confirmation that the terms "laws and regulations" in Article XX(d) include 
international law would not mean that all measures related to the enforcement of international law 
                                                      
126 United States second written submission, para. 37. WT/DS308/R 
Page 82  
 
 would ipso facto  be justified under that provision.  Demonstrating that the measures for which the 
exception is claimed are related to "laws and regula tions" which are not inconsistent with the GATT is 
only the first element that needs to be established.   
4.436  In addition, as the Appellate Body clarified in Korea – Various Measures on Beef , (1) the 
measures must be designed to "secure compliance" with  such "laws or regulations";  (2) they must be 
"necessary" to secure such compliance;   and (3) they must also comply with the requirements of the 
chapeau to Article XX.  In short, for an Article XX(d) defence to be successful, it does not suffice to 
allege that the measures at issue are related to the en forcement of "laws or regulations".  Article XX is 
structured and has always been interpreted so as to avoid any abuse by WTO Members. 
4.437  Were any other WTO Member to seek to justif y a measure related to the enforcement of an 
international treaty under Article XX, it would be subj ect to the same strict process of justification and 
review.   
4.438  Moreover, Mexico is not arguing that Article XX (d) would be available to justify measures 
aimed at securing Members' compliance with obligat ions owed under the WTO Agreement.  Nor does 
Mexico's reading of Article XX(d) mean that unilate ral action to counter a breach of the provisions of 
the WTO Agreement would be authorized.
127  This is yet another example of a non-existent systemic 
concern that the United States incorrectly believ es would arise should Mexico's interpretation be 
upheld by this Panel.  Mexico recognizes that Article 23 of the DSU prevents a WTO Member from seeking redress of a violation of WTO obligations other than by having recourse to the rules and 
procedures of the DSU.  But Article 23 of the DS U says nothing about measures aimed at securing 
compliance with other international agreements that  are not inconsistent with the GATT.  At most, 
Article 23 can only exclude measures aimed at secu ring compliance with obligations under the WTO 
Agreement from the scope of measures potentially authorized by Article XX(d) of the GATT 1994. 
4.439  For these reasons, Mexico's interpretation could not render Article 23 meaningless.  Mexico's 
measures are not about securing United States comp liance with the WTO "covered agreements", but 
with other
 international agreements which are not inc onsistent with the GATT 1994, in this case an 
agreement authorized by Article XXIV.  Mexico  maintains that Article XX(d) of the GATT and 
Article 23 of the DSU can still be read harmonious ly and there is no conflict between those two 
provisions.  A WTO Member may very well implement measures to secure compliance with obligations under an internationa l agreement without breaching its ob ligations under Article 23 of the 
DSU. 
4.440  The United States also argues that reading "law s and regulations" to include international 
treaties would render Article XX(h) of the GATT 1994 redundant.
128  Again, this is incorrect. 
4.441  Article XX(h) provides a specific exception fo r measures "undertaken in pursuance of any 
intergovernmental commodity agreement".  In or der to invoke Article XX(h), a WTO Member does 
not have to establish that the agreement in questio n is not inconsistent with the provisions of the 
GATT 1994, nor does it have to demonstrate that the me asure is "necessary".  It has only to show that 
a measure was "undertaken in pursuance" of obl igations under an intergovernmental commodity 
agreement.  Article XX(h) sets out a distinct righ t, applicable to a special subset of "laws or 
regulations" or international agreements:  the "intergovernmental commodity agreement[s]".  
Arguably, it is easier to justify a measure under Ar ticle XX(h), but the wording of that provision does 
not imply that "intergovernmental commodity agreem ent[s]" or obligations un der other international 
agreements cannot also be "laws or regula tions" within the meaning of Article XX(d). 
                                                      
127 United States second written submission, para. 47. 
128 Id., para. 44.  WT/DS308/R 
 Page 83 
 
 
 4.442  Turning to the United States argument that  the terms "laws and regulations" exclude 
international treaties, Mexico reite rates that nothing in the text, the context, or the object and purpose 
of Article XX(d) compels the restrictive interpreta tion that the United States urges.  For the reasons 
set out at paragraphs 70 to 73 of Mexico's  second written submission, the terms "laws and 
regulations" do not exclude them.  
4.443  Mexico also notes that the United States keeps r eading the word "domestic" into the text of 
Article XX(d).  As Mexico noted before, when th e GATT drafters wanted to limit the application of 
GATT provisions to domestic measures, they did so in  an explicit manner.  The applicable principles 
of treaty interpretation "neither require nor condone the imputation into a treaty of words that are not 
there … "129   
4.444  The United States also refers to Article XVI:4  of the Marrakesh Agreement Establishing the 
WTO to support its view that the phrase "laws and regulations" means "domestic laws and 
regulations".  However, a careful review of this  provision actually supports Mexico's interpretation 
that the scope of Article XX(d) is not limited to a Me mber's domestic laws.  In fact, Article XVI:4 of 
the WTO Agreement reads:  "[e]ach Member shall en sure the conformity of its laws, regulations and 
administrative procedures with its obligations … ".   In comparison, Article XX(d) does not read 
"measures … necessary to secure compliance with its  laws and regulati ons which are not 
incompatible with the provision of this Agreemen t".  Again, Mexico notes that when the GATT or 
WTO drafters wanted to limit the scope of certain provisions, they expressly did so.  
4.445  Mexico would like to briefly address the United States' arguments that Mexico's measures are 
not "necessary" within the meaning of Article XX(d) of the GATT 1994.  The United States' second 
written submission repeats the bald assertion that "Mexico had any number of alternative measures 
reasonably available to it… to assist its domestic can e sugar industry and/or resolve its disagreement 
with the United States over the exact terms of the NAFTA".130  Mexico insists that there should be no 
doubt for this Panel that Mexico exhausted all measures reasonably available to it, including:  
 – Diplomatic and internatio nal cooperation efforts, includi ng bilateral consultations and 
negotiations;   
  – resorting to the NAFTA's dispute settleme nt mechanism and exhausting all efforts to 
establish an arbitral panel, but the United St ates not only refused to appoint panellists, 
but when Mexico requested the United States NAFTA Secretariat to do so, ordered it to abstain from appointing them; 
 
 – sponsoring negotiations between industries of both countries;   – providing relief, at considerable public e xpense, to its sugar industry which faced a 
severe financial crisis. 
  
4.446  In summary, Mexico at all times has sought to resolve the dispute in good faith.  Of course, 
the United States is unable to identify a single alte rnative measure which would have been reasonably 
available to Mexico to achieve its legitimate objectives. 
4.447  It was only when all of these attempts had failed that Mexico took the measures now 
complained of.  This Panel should reject the United States argument without hesitation.   
                                                     
 
129 Report of the Appellate Body on  India – Patents , para. 46. 
130 United States second written submission, para. 65. WT/DS308/R 
Page 84  
 
 4.448  Mexico would remind the Panel that virtually a ll the facts submitted by Mexico have been 
corroborated by contemporaneous reports of the Un ited States Department of Agriculture.  Mexico 
did not submit self-serving evidence.  Our first written submission cited those USDA reports.  
6. Conclusions 
4.449  For the reasons set out in Mexico's prior submissions and elaborated upon in this opening 
statement, Mexico requests that the Panel fi nd that Mexico's measures are justified under 
Article XX(d) of the GATT 1994.  Accordingly, the United States' complaint must be rejected in its 
entirety. 
L. C
LOSING STATEMENT OF MEXICO AT THE SECOND MEETING OF THE PANEL  
1. Response to the United States' oral arguments 
(a) Paragraphs 6 and 7131 
4.450  At paragraph 6 of its opening oral statement, the United States stated that "acceptance of 
Mexico's interpretation of 'laws or regulations' to include obligations owed to Mexico under the 
NAFTA would open the door for any Member to claim that a breach of the WTO Agreement, or some other treaty, by another Member meant that the Member was to be free to breach any of its WTO 
obligations".  At paragraph 7, it further states th at in such a case "WTO dispute settlement would 
become a forum of general dispute resolution for all international agreements, and all such agreements 
would be in effect incorporated into, and enforced by, the WTO Agreement by virtue of Article XX(d)".  Mexico addressed those issues in the opening session in detail,  at paragraphs 59 to 
72 of its oral statement,
132 but would like to add that this is an incorrect but highly – albeit 
unintentionally – revealing statement in that it assu mes that all WTO Members that are parties to 
other international treaties will ordinarily refuse to  submit to dispute settlement under those treaties, 
just as the United States has done in this case. 
4.451  In its opening statement, Mexico pointed out clearly that a Member must do more than merely 
claim that a treaty has been breached  in order to satisfy the necessity test; in addition, it must comply 
with all the requirements established under Article XX( d), and its action is further subject to review 
by means of the DSU.  If a State sought to secure another Member's compliance with another treaty 
through Article XX(d) without first invoking that treaty's dispute settlement mechanism, the obvious 
answer of a WTO Panel would be that Article XX (d) cannot be used as a means of forum shopping.  
The Member in question would have to use the prope r forum, that is, the one established by the other 
treaty. 
4.452  Moreover, the Panel should note the theoretical  dimension of the United States' argument.  
Frankly, the situation it poses is purely hypothetical.  It would arise only if WTO Members were sued 
pursuant to other international treaties owing to pr esumed breaches under such treaties, and refused to 
submit to dispute settlement mechan isms under such treaties.  The fi rst question that arises is: why 
would WTO Members invoke a GATT 1994 exception when the treaties with which they seek to secure compliance have mechanisms to resolve disputes arising thereunder? If both States submit to 
the stipulated mechanism to settle their dis pute, that will be the end of the matter. 
4.453  There should not be any doubt:  Mexico does not
 consider that the US attitude with regard to 
this case is the regular conduct of the community of States.  Mexico does not  suppose that States 
ordinarily commit acts giving rise to international complaints by other States and then refuse to 
                                                      
131 See paras. 4.347 and 4.348 of this report, above. 
132 See paras. 4.426 to 4.439 of this report, above.  WT/DS308/R 
 Page 85 
 
 
 submit such acts to review under established disput e settlement mechanisms.  International practice 
shows that States regularly comply with agreemen ts to submit to dispute settlement procedures.  
Mexico's participation in this and other proceedings corroborates this fact.  In its first written 
submission, Mexico showed how on the three ot her occasions where a NAFTA panel was requested, 
the respondent agreed to appoint panellists.  The United States was the respondent party in two of the 
three cases and its measures were challenged successfully. 
4.454  Mexico has made it clear that this case pres ents extraordinary circumstances in which a 
dispute exists regarding compliance by a State – the United States – with its international obligations, 
and that State has refused to submit to a dis pute settlement mechanism expressly established by 
exploiting a deficiency in the proce dure for the appointment of panellists. 
4.455  Mexico maintains that in these extraordin ary circumstances, the GATT 1994 allows the 
affected State to adopt measures to  secure the obstructionist State's compliance, and to protect its 
legitimate interests by rebalancing the situation and re-establishing the status quo ante .  The only 
reason why Mexico has invoked Article XX(d) in this  case is that it cannot have access to the NAFTA 
dispute settlement mechanism, which has been blocked by the United States. 
(b) Paragraph 11133 
4.456  In paragraph 11 of its opening statement, the United States claimed that "international trade 
agreements, such as the NAFTA and the WTO Agreemen t, are not laws and are not enforceable in US 
courts".  This is a mischaracterization of US law and of the NAFTA itself. 
4.457  The starting point is the US Constitution.  Article VI, Clause 2 states that international 
treaties, as well as the Constitution itself and the laws  of the United States, "shall be the Supreme Law 
of the Land".  With regard to treaties subscribed by the US that are international trade agreements, 
such as the WTO and NAFTA, for purposes of its dom estic law the United States has chosen to ratify 
those agreements as if they were domestic legisla tion, and the US Congress has provided that in such 
circumstances those agreements are not self-executing at the domestic level. 
4.458  Nevertheless, the simple reason why the NAFTA is not a law which is enforceable by private 
parties in the US courts is that the NAFTA Par ties expressly agreed in Article 2021 that they would 
not provide for a right of ac tion under their domestic law to secure another Party's compliance with its 
NAFTA obligations.  In the NAFTA the Parties expr essly agreed not to provid e for a domestic cause 
of action that would allow private parties to sue in  the domestic courts of a Party in order to secure 
another NAFTA Party's compliance with its NAFTA ob ligations.  In other words, it would have been 
unnecessary to prohibit such a domestic cause of action if  the NAFTA could never have the effect of a 
law in the internal legal order of the United Stat es.  In its second written submission, Mexico quotes 
NAFTA Article 2012 at footnote 59 and notes the implementing action taken by Canada and the 
United States.  In the absence of such a NAFTA provision, any NAFTA Party could have made NAFTA enforceable by private right of action before its domestic courts. 
4.459  However, barring a private cause of action in the courts of each NAFTA Party does not mean 
that NAFTA has no domestic legal effect in each Party.   
4.460  Interestingly, Section 102(c) of the NAFTA Implementation Act states that "No person other 
than the United States  … shall have any cause of action or defence under …[the NAFTA] or by virtue 
of Congressional approval thereof… ".  Thus, US law expressly provides that international trade 
agreements are directly enforceable in judicial actions brought by the federal government.  For the 
WTO, this is implemented in 19 USC 3512(b)(2)(A), which provides: 
                                                      
133 See para. 4.352 of this report, above. WT/DS308/R 
Page 86  
 
 "No State law, or the application of such a State law, may be declared invalid as to 
any person or circumstance on the ground th at the provision or application is 
inconsistent with any of the Uruguay Round Agreements, except in an action brought 
by the United States for the purpose of declaring such law or application invalid ."  
4.461  Further, the United States actually retained a ty pe of domestic right of  petition in Section 301 
of its Trade Act of 1974, which permits privat e parties to petition the United States Trade 
Representative to secure compliance with the NAFTA by another NAFTA Party.  Clearly, international treaties, including trade agreemen ts, are treated as "laws" in the United States. 
4.462  The recent court decision in the Corus Staal  case, cited by the United States in its opening 
statement does not support its propos ition that trade agreements are not laws.  Rather, that decision 
found that a private party could not rely on the WTO Anti-Dumping Agreement or WTO panel 
decisions as a basis for overturning the US Co mmerce Department's interpretation of US anti-
dumping law.  That is a much narrower point. 
4.463  Accordingly, the position of the United States th at there is an absolute separation between 
laws and regulations, as internal obligations, and international trea ties, as international obligations, 
and that in no circumstances can international agreements  be law, is incorrect.  It is clear that the three 
NAFTA Parties, like many other countries, consider inte rnational treaties to be laws.  This contradicts 
the United States position on the ordinary meaning of the terms "laws and regulations".   
4.464  The Panel should appreciate as well that, as Mexico pointed out, when the drafters wished to 
limit the meaning of the terms, they did do expressly.   As the United States pointed out in its opening 
statement, when they wished to refer to intern ational law as excluding domestic law, they did so 
clearly through the use of the term "international la w".  Equally, when they wanted to refer to the 
domestic law as excluding international law they used formulas such as "laws and regulations of a Member", "its laws and regulations",  "the laws and internal regulations ", etc.  Article XX(d) is not the 
only case in the WTO Agreements in which the fo rmula "laws and regulations" is used without 
qualification and, accordingly, it cannot be presume d that it excludes international treaties.   
(c) Paragraphs 16 and 17
134 
4.465  At paragraphs 16 and 17 of its opening statement, the US alleges that Mexico has not made it 
clear why it believes that its measures are necess ary to secure compliance with NAFTA.  Mexico 
thinks that it has made this point perfectly clear, but for the assistance of the United States, it will set 
out its reasoning in summary form as follows: 
– The NAFTA contains agreements on the bila teral sweeteners trade, pursuant to which 
Mexico would export sugar to the US and the US would export HFCS to Mexico. 
 
– Mexico believed that the US breached its obligations with regard to the Mexican 
sweeteners trade, and had recourse to  the dispute settlement mechanism. 
 
– The US was fully aware of Mexico's grie vance.  The USDA reported on the hardship 
caused in Mexico by the breakdown of the bilateral sweeteners trade agreement.   
 
– Although the first two stages – bilateral c onsultations and consultations through the 
Free Trade Commission – took place, the US im peded the establishment of an arbitral 
panel. 
 
                                                      
134 See paras. 4.357 and 4.358 of this report, above.  WT/DS308/R 
 Page 87 
 
 
 – Meanwhile, United States HFCS and HFCS locally produced from US corn continued 
to gain access to the Mexican market, almost  entirely displacing Mexican sugar in the 
soft drinks segment. 
 
– As the US refused to settle the dis pute through the mechanism established under 
NAFTA's Chapter Twenty, after attempts to  resolve it through this and other means 
had failed, the Mexican Congress adopted a ta x in order to rebalance its market and 
re-establish the status quo ante , as a temporary measure until a solution is reached. 
 
– In these circumstances, Mexico believes th at its measures fall within the scope of 
Article XX(d). 
 
– The Mexican Congress measure is a response to the concern to rebalance the Mexican 
market affected by the HFCS imports and its local production, until Mexican sugar is granted the agreed access under the NAFTA or a solution is reached to the dispute in 
another form.  The affected commodity wa s HFCS, the directly related commodity.  
The measure is intended to secure US compliance with its NAFTA commitments.  It provides a strong incentive for the US to cooperate in the dispute settlement procedure or otherwise reach a mutually satisfactory solution.   
 (d) Paragraph 17
135 
4.466  In paragraph 17 of its opening statement, the US  points out that Mexico contends that "by 
hurting US exports of HFCS through its discriminat ory tax, Mexico will 'induce' sweetener producers 
to come to the 'negotiating table'".  This is not what Mexico submitted.  Mexico's rebuttal argument is 
clearly expressed at paragraphs 82 and 83 of its sec ond written submission.  The concrete point is that, 
even though the measures adopted by Mexico have not yet resolved the dispute, they have had an 
effect aimed at resolution, even if  this has been a minor one.  As an example, Mexico referred to a 
news report that quotes the President of the Nati onal Chamber of the Sugar and Alcohol Industries, 
who points out that the tax motivated the US produ cers to sit down again at the negotiating table, 
whereas previously they had not had any communi cation with the Mexican industry.  Admittedly, 
having the United States comply with its internat ional obligations is not the same as having the 
producers of both countries establish contact; however, the fact that the US maintains a position of 
complete intransigence does not make the measure any less necessary.  Mexico would regret it if the 
US chose to maintain that position of absolute intransigence, as seems to have been suggested. 
(e) Paragraph 18136 
4.467  In paragraph 18 of its opening statement, the Un ited States offers a new argument.  It suggests 
that the anti-dumping measures adopted by Mexico w ith respect to HFCS imports altered the balance 
of rights and obligations under the NAFTA.  This is  incorrect.  Mexico conducted an anti-dumping 
investigation pursuant to the request of the dom estic industry.  It concluded that dumping was 
occurring  and that there was injury to the domestic industry, and it imposed anti-dumping measures.  The measures were challenged through the WTO dispute settlement procedures and NAFTA's Chapter Nineteen.  Mexico subm itted to both proceedings.  When the panellists concluded that 
Mexico had not satisfied the requirements needed  to impose the measures, Mexico revoked the 
corresponding administrative resolution, cancelled the bond posted, and the anti-dumping duties were 
refunded.  Mexico did not alter the balance of rights and obligations of the NAFTA.  It considered that it had a right and it exercised it.  Afte r it was challenged successfully, Mexico revoked the 
measures and cancelled their effects.  Moreover, th e Mexican measures did not inhibit HFCS imports.  
                                                     
 
135 See para. 4.358 of this report, above. 
136 See para. 4.359 of this report, above. WT/DS308/R 
Page 88  
 
 It must not be forgotten that during that period approximately 3 million tons of HFCS entered the 
Mexican  market. 
(f) Paragraph 20
137 
4.468  The argument that the United States attributes to Mexico at paragraph 20 of its opening 
statement is also incorrect.  In its second writte n submission, as well as in its opening statement, 
Mexico alluded to the general law principle stated by the Permanent Court of International Justice in 
the Chorzów Factory  case pursuant to which a party cannot argue  in its favour that another party has 
not complied with an obligation or that it has not  had recourse to some means of redress when, by 
way of an illegal act, that party has prevented the other party from complying with its obligation or 
from having recourse to a tribunal that would have been  otherwise available.  Mexico has also alluded 
to other rules of international law.  It considers that WTO panels and the Appellate Body can consider 
and apply them.  Mexico refers the Panel to para graphs 110 of Mexico's first written submission and 
14 to 18 of its second written submission. 
4.469  Mexico considers that the measures at issue in  this dispute are justified pursuant to the 
principles and rules of international law, in cluding the NAFTA and the rules of customary 
international law.  Mexico submits that the Panel can  consider such rules, bu t it has not requested the 
Panel to rule that, in the scope of the WTO, the measures are justified based on rules of international 
law.  Mexico relies on its defence in the a pplication of Article XX(d) of the GATT 1994. 
(g) Paragraph 22138 
4.470  At paragraph 22 of its opening statement, the Un ited States refers to Articles 7 and 11 of the 
DSU and argues that WTO panels "are established to  examine the relevant provisions of the covered 
agreements and to make such findings as will assi st the DSB in making the recommendations or in 
giving the rulings provided for in those agreements".  Mexico agrees with this general statement, but 
reminds the Panel that the United States has made  erroneous submissions on crucial points regarding 
the meaning of these provisions. 
 (a) "Making the recommendations" or "giv ing the rulings" provided for "in those 
agreements", including the GATT 1994, does not mean that panel recommendations 
are limited to recommendations that WTO- inconsistent measures be brought into 
conformity with the covered agreements.  Mexico discussed at length GATT Articles XXII and XXIII.  The United States has ignor ed them despite the fact that the GATT 
is the specific covered agreement at issue.  Those articles confer more flexibility on 
WTO Panels than the US concedes.  See paragraphs 43 to 52 of Mexico's opening 
statement at this second meeting. 
  (b) GATT Articles XXII and XXIII have not been amended by the DSU.   (c) Pursuant to those GATT provisions, a WTO Panel has the flexibility to issue any 
rulings or recommendations that it deems appropriate in the circumstances of a 
dispute. 
  (d) While it is true that, when a panel concludes that the measures in dispute are 
inconsistent with the covered agreements , Article 19.1 of the DSU mandates it to 
recommend that the Member concerned bring the measure into conformity, 
Article 19.1 does not prevent a panel from issuing other
 rulings or recommendations 
                                                      
137 See para. 4.361 of this report, above. 
138 See para. 4.363 of this report, above.  WT/DS308/R 
 Page 89 
 
 
 in accordance with GATT Articles XXII and XXIII.  Contrary to the United States' 
argument at paragraph 26 of its opening statement, Article 19 of the DSU only 
clarifies that one recommendation is warrant ed when findings of inconsistency are 
issued.  It does not rule out the possibility that other recommendations or rulings be issued based on GATT 1994 Articles XXII and XXIII. 
 
 (e) Thus, it is entirely within the Panel's discretion to recommend, in the extraordinary 
circumstances of this dispute, that the parties take steps to resolve the broader 
NAFTA dispute. 
 2. Conclusions 
4.471  Throughout this proceeding, Mexico has ur ged the Panel to recognize the substantial 
prejudice resulting from the United States' refusal to c ooperate in good faith in the international arena 
to resolve a legitimate dispute rega rding the bilateral sweeteners trade,  in addition to an abuse of the 
proceedings.  The Panel is a jurisdictional body that  operates under international law rules, and it 
should not condone the US conduct.   
4.472  Mexico has meticulously documented the origins of the bilateral dispute, the efforts it has 
made to resolve it legally through all means, the United States' persistent refusal to submit to the 
NAFTA's dispute settlement mechanis m, and the serious prejudice that resulted and still can result for 
Mexico. 
4.473  There is not the least doubt that the United St ates has abused the pr oceedings, even this 
Panel's proceeding.  It has refused to submit to  the established mechanism to settle disputes, a 
mechanism that it negotiated and subscribed to in  an international treaty, has engaged in forum 
shopping and has not only presented to the Panel an incomplete overview of the pertinent facts, but 
has also made false statements. 
4.474  In deliberating on this case, cons ider the detailed account of the facts that Mexico has offered, 
including the repeated efforts to establish an arb itral panel under the NAFTA and to find a solution to 
the dispute, an account plainly established, in many  instances in official documents drawn up by the 
United States itself. 
− Contrast that with the case that the US broug ht before the Panel, in which it chose to 
omit all reference to the underlying broader dispute that in fact is the source of the dispute that the Panel now has before it.   
− Contrast that also with the lukewarm res ponse of the United States when confronted 
with the undisputed facts:  on the one hand, seeking to ignore it, stating that it is 
completely irrelevant; but also sugges ting erroneously, for example, that both 
countries are presently involved in the establishment of the arbitral panel requested by Mexico. 
− Consider further the US response to a Panel question where, notwithstanding having 
admitted that no NAFTA panel has been established almost five years after Mexico requested it, the US complained that Mexi co unilaterally made a determination that 
the US had breached its market access ob ligations, without ha ving obtained a panel 
ruling.   
− Consider the United States' evasive respon se to Mexico's question about its current 
views on the legitimacy of counter-measures when one State blocks another's access 
to a treaty's dispute settlement mechanism.   WT/DS308/R 
Page 90  
 
 Mexico's respectful view is that this Panel deser ved a sincere and complete response from the United 
States.  4.475  The US has provoked an unfair interaction between the NAFTA and the WTO Agreement, 
resulting from the automatic operation of the WTO's DSU and Chapter Eleven of the NAFTA, and the 
corresponding lack of automaticity in the operatio n of NAFTA's Chapter Twenty, due to the US 
refusal to appoint panellists in a proceeding that presently requires the good faith and cooperation of 
both disputing Parties.  On the one hand, Mexico has given its consent ex ante  to submit to WTO 
dispute settlement proceedings and to NAFTA's Ch apter Eleven.  The United States, however, has 
exploited the fault in the panellist appointment process under NAFTA's Chapter Twenty and has for 
many years been able to avoid submitting to the dispute settlement system. 
4.476  There is more than a little irony in this case:   
– Mexico's grievance long pre-dates this US  grievance before the Panel.  However, 
owing to US intransigence, in spite of Me xico's having satisfied all the requirements 
for panel appointment in Chapter Twenty , no panel was established and all other 
efforts to resolve the crisis failed.  Mexi co took action to protect its own legitimate 
interests and to rebalance its market, as well as to seek to secure US compliance with its international obligations.  The US insi sts that that it is not in breach of its 
obligations but it refuses to allow an inde pendent panel to examine that claim. 
– Mexico emphasizes that it would never have imposed the measures in the first place 
if it had not been for the US refusal to submit to dispute settlement.  The Mexican 
measures were immediately submitted to this Panel following the US claim, in 
accordance with the DSU, and now Mexico  faces three separate NAFTA Chapter 
Eleven claims in addition to the one th at it has already successfully defended (the 
GAMI Investments  case) which arose out of the September 2001 expropriation of 29 
failing mills, mills that were failing because of the sugar surplus crisis. 
– However, the United States, whose refusal led to the measures now complained of in 
both forums, has successfully managed to avoid any legal scrutiny of its conduct. 
4.477  Mexico urges the Panel to reflect deeply on the ine quity of this situation.  It is fundamentally 
unfair to reward the obstructing respondent, who now  comes here asking the Panel to consider only a 
small part of the dispute between the parties.  With  all due respect, it would bring international dispute 
settlement mechanisms into disrepute to reward a State that has avoided in ternational cooperation.  
4.478  The equities are in Mexico's favour and the prejudice that Mexico is suffering cannot be 
understated:   
– Treating the dispute as purely a WTO dispute would reward the United States for 
engaging in forum shopping while it simulta neously continues to block Mexico's 
good faith attempts to resolve its longsta nding grievance.  This would be to 
perpetuate an injustice that has persisted for more than six years and is prejudicial in 
and of itself.  
 
– The prejudice is compounded: 
  On the one hand, there is the economic prejudice to the Mexican sugar industry and 
the sugar producers segment, whose charact eristics and economic, political and social 
sensitivities already explained.  The Panel should not forget that, as pointed out at 
paragraph 77 of our first written submission, it is in the interests of the United States  WT/DS308/R 
 Page 91 
 
 
 to prolong the NAFTA dispute.  At the origin of the broader dispute that arises under 
the NAFTA there is a protectionist interest of the United States, an interest in isolating its sugar industry from competing with Mexican sugar that has motivated 
the trade restrictions on Mexican access to  that market.  The longer the economic 
disruption of the Mexican sugar sector last s, the more its sugar production capacity 
weakens.  If this capacity diminishes, ther e is a smaller likelihood of sugar surplus 
being generated that can be exported to the US market.   
  If this Panel were to make the findings requ ested by the United States, it is likely that 
they could directly contradict those that might be made by a NAFTA Panel presented 
with the same facts.  Mexico has directed the Panel to examples of counter-measures 
taken in the NAFTA context as well as to other instances where the United States has reserved the right to take action of the type that Mexico took.  This evidence is being 
put before the Panel, not because th e Panel can pass on the legality of 
countermeasures under NAFTA, but to dem onstrate that Mexico would have a 
perfectly legitimate defence against any US claim in this forum.  Given the United 
States' conduct to date, the prospect of a NAFTA Panel being in a position to make 
such rulings appears remote.  However, th ere is substantial evidence that a NAFTA 
Panel would find Mexico's measures to be  justified under applicable rules of 
international law – if the United States agreed  to submit to the jurisdiction of a panel 
competent to examine all the facts and lega l matters – and this Panel should take note 
of that evidence.  
  There is, of course, the additional prej udice resulting from the inability to resolve a 
grievance with regard to the bilateral trade in sweeteners. 
 
− Mexico faces a prejudice of being sued in  different forums.  There is a potential 
prejudice that could result from the NA FTA Chapter Eleven cases, in which 
substantive monetary damage s are claimed, and a collateral effect of the United 
States' complaint is the possibility that this  Panel could make certain findings on the 
facts that could be used in the NAFTA Chap ter Eleven claims against Mexico.  This 
Panel is being asked to determine legal issues in a narrow legal context (the GATT 
1994) that may prejudge the resolution of the same or related issues under a broader 
set of legal rules (including the NAFTA ru les).  Yet this Panel cannot determine 
Mexico's right to take countermeasures unde r the NAFTA;  only a body that has that 
jurisdiction can do so. 
M. C
LOSING STATEMENT OF THE UNITED STATES AT THE SECOND MEETING OF THE PANEL  
4.479  The United States would like to emphasize what this dispute is about.  This dispute is about 
Mexico's obligations under Article III of the GATT 1994 and the consistency of Mexico's tax 
measures with those obligations.  Throughout these pr oceedings, and again in its opening statement, 
however, Mexico has done its utmost to avoid any discussion of this issue.  Instead, Mexico has 
chosen to focus its response in these proceedings on an unprecedented reading of Article XX(d) and a 
recasting of this dispute as one about United St ates obligations under the NAFTA.  As the United 
States has maintained throughout these proceedings , and continues to maintain, both Mexico's 
Article XX(d) defence and its efforts to recast th is dispute as one under NAFTA are unsustainable.  
To avoid repetition on these points, the United Stat es would like to refer the Panel to its prior 
submissions for the many reasons why Mexico's XX (d) defence must fail and why its discussions of 
NAFTA in these proceedings are simply not relevant to task before this Panel.  Instead, the United 
States will use its closing statement to respond to some specific points raised in the various sections of 
Mexico's opening statement.  WT/DS308/R 
Page 92  
 
 1. Introduction and the relevance and the status of the NAFTA dispute 
4.480  Turning to the first two sections of Mexico's  statement (its introduction and discussion of the 
relevance of the NAFTA dispute), Mexico makes three assertions there and one omission that merit some remarks.   
4.481  First, Mexico continues to fault the United States in these proceedings for not discussing 
Mexico's grievances under the NAFTA. Yet, even Mexi co admits that Mexico's grievances under the 
NAFTA are outside the Panel's terms of reference and, therefore, not issues which this Panel may 
issue findings on in this dispute.  Accordingly, rath er than engage on issues that are clearly outside 
this Panel's terms of reference, the United States has chosen to remain focused on the issues that 
actually are within the Panel's terms of reference – namely the consistency of Mexico's tax measures 
with Mexico's WTO obligations.   
4.482  Second, Mexico asserts that the United Stat es does not see any "link" between HFCS and 
cane sugar.  This, of course, is not the United Stat es view.  The United States agrees with Mexico, for 
example, that HFCS and cane sugar are directly  competitive and substitutable products.  What the 
United States claims are not linked, however, ar e Mexico's obligations under the WTO Agreement 
and United States obligations under the NAFTA.  Th at is, nothing in the WTO Agreement makes the 
obligations Mexico owes the United States unde r Article III of the GATT 1994 contingent on 
Mexico's view of whether the United States has complied with obligations under the NAFTA.  
4.483  Third, Mexico asserts that Article 31(3) of the Vienna Convention requir es panels to consider 
any relevant standards or norms applicable to the rela tions of the parties to a treaty.  And, therefore, 
Mexico asserts that the Panel must consider the NAFTA  in this dispute.  Article 31(3) of the Vienna 
Convention, however, pertains to the interpretation of  the terms of a treaty, and provides that "relevant 
rules of international law applicable in the relati ons between the parties" shall be taken into account 
along with the context of the treaty's terms.  Mexico has not identified any terms of the WTO Agreement for which it might be using the NAFTA or  "general principles of international law" as 
relevant context for interpretation of the meaning of the WTO Agreement's terms.  Mexico reference 
to Article 31(3) does not change the fact that inte rpretation and application of the NAFTA are outside 
the Panel's terms of reference. 
4.484  Fourth, as to Mexico's omission, Mexico fails  to explain how the Panel could consider 
whether Mexico's tax measures are necessary to sec ure United States compliance with the NAFTA, if 
the Panel does not first examine what the terms of  the NAFTA are and whether United States actions 
are consistent with those terms. Yet, these issues  as to the interpretation and application of the 
NAFTA are the precise issues Mexico has already conceded are outside this Panel's terms of 
reference.  Thus, the very determ ination that Mexico's Article XX(d ) defence calls upon the Panel to 
make –  namely, United States compliance with th e NAFTA –  is the very determination Mexico 
asserts is not within the Panel's authority to make. 
4.485  Mexico's suggestion that the Panel might cons ider the "facts" of the NAFTA, and take as 
"background" that a dispute under the NAFTA prompt ed Mexico's tax measures and gave rise to the 
present WTO dispute, does not save its Article XX(d) defence.  The fact that the NAFTA exists or that a dispute exists thereunder, does not answer  the question of whether Mexico's tax measures 
constitute measures to secure compliance with alle ged United States obligations to provide market 
access for Mexican sugar under the NAFTA (that is, assuming for the moment the NAFTA obligations fall within the scope of "laws or regul ations"). With respect to supposed factual issues 
such as those in paragraph 36 of Mexico's opening statements, the United States would like to come 
back to those later in writing.  WT/DS308/R 
 Page 93 
 
 
 2. Recommendations 
4.486  Turning to the next section of Mexico's statem ent as to the recommendations a WTO panel is 
permitted to make, Mexico contends that per Ar ticle XXIII of the GATT, the recommendations a 
WTO panel might make in a given dispute are more flexible than suggested by the United States.  
This is simply not true.  DSU Article 19.1 defi nitively answers the question of what types of 
recommendations WTO panels are permitted to make –  that is, if a panel finds a Member in breach of 
its WTO obligations, it "shall recommend that th e Member concerned bring the measure into 
conformity" with the rele vant covered agreement. 
3. Article III 
4.487  With respect to Mexico's points on Article III:2 and III:4, the United States has already 
addressed the issues Mexico raises in the United St ates second submission and responses to questions.  
The United States will not repeat those responses now, ot her than to make three brief points.  One, as 
the United States has said before, a measure may co nstitute both a breach of Article III:2 and III:4.  
Two, Mexico has not rebutted the evidence and arguments presented by the United States that 
Mexico's tax measures constitute a form of dissimila r taxation within the meaning of Article III:2 or a 
law affecting the internal sale and use of importe d products within the meaning of Article III:4.  
Three, it is Mexico that has chosen to alter the conditions of competition by applying tax measures 
that discriminate against soft drinks and syrups as well as against sweeteners.  Specifically, Mexico's 
tax measures constitute an excise tax on soft drinks  and syrups containing HFCS.  The United States 
has demonstrated how that tax translates linearly into a conditional tax on HFCS and, in fact, as a 
prohibitive excise tax on HFCS.  It, therefore, fa lls under Article III:2.  Mexico's tax measures are 
also measures "affecting" the use of importe d HFCS.  The measures punish bottlers for using 
imported HFCS.  Mexico's tax measures, therefore, fall under Article III:4.   If there is overlap with 
respect to Articles III:2 and III:4 in this dispute, it is because the particular tax measures Mexico has 
chosen to apply are discriminatory excise taxes on one product that also punishes the bottler for using 
imported inputs to make that product. 
4. Article XX(d)  
4.488  Turning to Article XX(d) and the specific points Me xico raises there.  The first point is that, 
despite Mexico's assertions otherwise, Mexico mo st clearly has not met its burden of proof with 
respect to its Article XX(d) defence.  Under that burden, Mexico must put forth facts and arguments 
sufficient to establish that its tax measures are, first, justified under para graph (d) as measures 
"necessary to secure compliance with laws or regulations" and, second,  applied in manner that is in 
keeping with the chapeau to Article XX.  As la te as this second meeting of the Panel, however, 
Mexico has yet to marshal any legal argument under the relevant rules of treaty interpretation to 
support its assertion that the phrase "laws or regul ations" encompasses United States obligations 
under the NAFTA or to provide any factual support fo r its contention that its tax measures secure, or 
even contribute, to United States compliance with alleged NAFTA obligations, much less that its tax 
measures are necessary to such compliance. 
4.489  Mexico's comments in paragraphs 9 and following of its closing statement on the status of the 
NAFTA under United States law, to the extent the United States has been able to understand them, do 
not appear accurate or complete.  However, unfort unately the United States is not in a position to 
comment in more detail on those paragraphs on such short notice. 
4.490  More generally, the United States fails to see how Mexico's more general point assists its 
position.  Mexico seems to say that different  countries treat the relationship between their 
international obligations and their internal laws in  different ways.  The United States fails to see why 
that would be an argument in favour of interpreti ng the words "laws or regulations" in Article XX(d) WT/DS308/R 
Page 94  
 
 of the GATT as applying to international agreemen ts.  If anything, Mexico's point highlights the 
difference between international obligati ons, and internal la ws and regulations. 
4.491  Further to this point, the phrase "laws or regul ations" within Article XX(d) means the "laws 
or regulations" of the Member claiming the Article  XX(d) exception; not the laws or regulations of 
the Member against whom it has invoked its Article XX( d) exception.  Therefore, by way of example, 
Mexico might invoke Article XX(d) as justification for a measure to secure compliance with its own 
laws or regulations, but not the laws or regulations  of other Members.  Said another way, Mexico 
cannot assert an Article XX(d) defence for measu res to enforce United States domestic law. 
4.492  The United States' second point is that in its opening statement – and perhaps this is a 
reflection of Mexico's recognition of where acce ptance of its Article XX(d) defence may lead – 
Mexico suggests that its reading of Article XX(d) is not as broad as it might first appear.  That is, 
Mexico suggests that its reading of Article XX(d)  only applies in situations where (i) a genuine 
dispute exists under an international agreement; ( ii) dispute settlement under that international 
agreement has not resolved the dispute; (iii) diplomatic  efforts have also not resolved that dispute; (iv) 
the domestic industry of the Member invoking Article  XX(d) has suffered some type of harm as a 
result of the dispute under the international agreemen t; and (v) the relevant in ternational agreement is 
not a WTO agreement.  This new reading of Article XX(d), however, does not get us past the fact that Article XX(d) does not apply to obligations under an international agreement.  Nor does it get us past 
the fact that, under Mexico's reading of Article  XX(d), any Member, who believes that another 
Member has breached obligations owed under an inte rnational agreement, would be free to breach its 
WTO obligations, provided the Member claimed to have exhausted other avenues to resolve the 
dispute and to have a domestic industry in need of assistance.  Despite Mexico's claims, this would be 
an extremely broad exception to WTO rules.  
4.493  Finally, no less than two pages from the end of its opening statement, Mexico tries to refute 
some of the points the United States offers, based on application of the rules of treaty interpretation, 
as to why the phrase "laws or regulations" means th e domestic laws or regulations of the Member 
claiming the Article XX(d) exception.  Mexico 's arguments here, however, do not save its 
Article XX(d) defence.  For example, the fact that Article XVI:4 of the Marrakesh Agreement 
includes the word "its" before "laws, regulations and administrative procedures" only re-emphasizes 
the United States point that "laws or regulations " as used in the WTO Agreement is understood to 
mean the domestic laws or regulations of WT O Members, not obligations under international 
agreements or under general principles of interna tional law.  In the numerous instances where the 
WTO Agreement references "laws" or "regulations" so me are proceeded by the word "its" or the word 
"their" (referring to a Member's, or Members' in th e plural, laws and regulations); others are simply 
preceded by "the" or no article at all, as in Article  XX(d).  What is clear, however, is that when the 
WTO drafters meant to refer to international law, they did so expressly, as in Articles 3.2 of the DSU 
and 17.6 of the Anti-Dumping Agreement. 
4.494  Moreover, contrary to Mexico's assertion, the United States is not reading "national" or 
"domestic" into the text of Article XX(d).  Rather, the ordinary meaning of the phrase "laws or regulations" interpreted in its c ontext and in light of the WTO Agreement's object and purpose leads 
to the conclusion that phrase "laws or regulations " with no qualifying adjective proceeding it, means 
the domestic laws or regulations of the Member claiming the Article XX(d) exception.  WT/DS308/R 
 Page 95 
 
 
 V. ARGUMENTS OF THE THIRD PARTIES 
5.1 The arguments presented by Canada, China, the European Communities, Guatemala and 
Japan in their written submissions and oral st atements are reflected in the summaries below.139 
A. CANADA  
1. Introduction 
5.2 The Panel has invited the parties and third pa rties to comment on Mexico's request for a 
preliminary ruling on whether the Panel should declin e to exercise its jurisdiction in this dispute. 
5.3 Canada's statement will therefore address the two following questions: 
 – first, whether the Panel should decide this  request by means of a preliminary ruling; 
and 
 
 – second, whether the Panel should in this  case decline to exercise its jurisdiction. 
 
5.4 For reasons that Canada will briefly elaborate, the answer to the first question is, yes, the 
Panel should make a preliminary ruling.  The answ er to the second question is, no, the panel should 
not – and cannot – decline to exercise its jurisdiction. 
2. Mexico's request for a preliminary ruling 
5.5 Mexico asserts that this Panel (i) has the compet ence to decline to exercise its jurisdiction in 
its entirety; and (ii) should do so in this case.  Because a finding in favour of Mexico on these two 
points would render moot any consideration of the United States' claims on their merits, this issue 
should be dealt with at the earliest stages of the proceedings. 
5.6 The WTO jurisprudence is clear on the need to raise and consider jurisdictional objections in 
a timely manner.  The Appellate Body in US – 1916 Act  stressed that an objection to jurisdiction 
should be raised as early as possible in the panel process because "the vesting of jurisdiction in a panel is a fundamental prerequisite
 for lawful panel proceedings".140 
5.7 The Appellate Body further emphasised this point in Mexico – Corn Syrup  where it stated that 
panels must address and dispose of certain issues of a fundamental nature such as jurisdiction in order 
to satisfy themselves that they have auth ority to proceed in a particular matter.141 
5.8 Mexico's request that the Panel decline to exer cise its jurisdiction, is not, as such, a challenge 
or objection to the Panel's jurisdiction.  Canada do es not understand Mexico to be suggesting that the 
Panel does not have authority to proceed.  On th e contrary, Mexico has recognised in its first 
submission that this Panel has prima facie jurisdiction to hear this case.142  However, whether the 
question raised is a panel's authority to proceed to hear the claims on their merits, as in the case of a 
jurisdictional objection, or, as in this case, the Panel's discretion to proceed, the issues in both 
situations are of a fundamental nature.  From a pr actical standpoint, were the Panel to find that it 
could and should accede to Mexico's request, the c onsequences would be the same as if the Panel 
                                                      
139 The summaries of the third parties' arguments are based on the executive summaries submitted by 
the third parties to the Panel, in the case of  China, the European Communities and Japan; and on the oral 
statements submitted by Canada and Guatemala. 
140 Appellate Body Report on  US – 1916 Act , para 54. 
141 Appellate Body Report  on Mexico –Corn Syrup (Article 21.5 – US), para 36. 
142 Translation of the first written s ubmission of Mexico, at para 93. WT/DS308/R 
Page 96  
 
 were to find that it did not have jurisdiction: it would obviate the need to consider the complainant's 
claims or to make further recommendations to the Dispute Settlement Body. 
5.9 In the light of the Appellate Body's guidance in  the case of jurisdictional objections and given 
that Mexico's request was duly formulated within the terms of paragraph 13 of the Panel's Working 
Procedures, it would be appropriate, and indeed prefer able, for the Panel to deal with this issue on a 
preliminary basis. 
5.10 Canada is therefore of the view that the Pa nel should decide this issue by means of a 
preliminary ruling rather than deal with the matter in its final report. 
3. The Panel's authority to decline jurisdiction 
5.11 Mexico relies on the principle of "judicial economy" to argue that the Panel may decline to 
exercise its jurisdiction when one of the parties re fuses to take the matter in dispute before what 
Mexico asserts is the appropriate forum.
143 
5.12 Canada does not agree with Mexico that the Pane l has the authority to decline to exercise its 
jurisdiction in this case. 
5.13 Article 3.2 of the Dispute Settlement Unde rstanding expressly recognises that the dispute 
settlement system serves to preserve the rights a nd obligations of WTO Members under the covered 
agreements .  Accordingly, as set out in Article 11 of th e DSU, a panel has a responsibility to make an 
objective assessment of the matter before it, including an assessment of the conformity with the relevant covered agreements of the measure at issue
. 
5.14 This Panel was established with the standard te rms of reference set out Article 7.1 of the 
DSU.  According to these terms of reference the Pane l is charged with examining the matter before it 
in the light of the relevant covered agreements  and making such findings as necessary to assist the 
Dispute Settlement Body in making recommendations or rulings.  Article 3.4 of the DSU provides 
that these recommendations or rulings are to be ai med at achieving a satisfactory settlement of the 
matter in accordance with the rights and obligati ons of the parties under the relevant covered 
agreements.144 
5.15 The United States, in this case, claims that Mexico's tax measures are inconsistent with 
Mexico's obligations under Article III of the GATT 1994.  The GATT 1994 is a covered agreement in 
Appendix 1 of the DSU.  Nevertheless, Mexico s uggests, that based on the principle of "judicial 
economy" the Panel could in this case simply decline to exercise its undisputed jurisdiction. The Panel 
simply cannot do this. 
5.16 "Judicial economy" is nothing more than a prin ciple by which a tribunal may choose to limit 
its findings to those necessary to resolve the disput e.  It cannot override the express provisions of the 
DSU, nor the rights and obligations, of parties and of panels, that flow from those provisions.  In 
particular, "judicial economy" cannot be  applied to relieve a panel of its duty to make the findings that 
are necessary to resolve a dispute.  Thus, in Australia - Salmon , the Appellate Body emphasized that 
the principle of "judicial economy" must be applie d keeping in mind the aim of the dispute settlement 
system, which is to resolve the matter at issue  and "to secure a positive solution to a dispute".145 
                                                      
143 Ibid. at para 97. 
144 Articles 7.1 and 3.4 of the DSU. 
145 Report of the Appellate Body on Australia – Salmon , para. 223.  WT/DS308/R 
 Page 97 
 
 
 5.17 For the Panel to do as Mexico asks and abstai n entirely from making findings in this case 
would be a gross misapplication of the principle of "judicial economy".  To do so would be contrary 
to the Panel's duty under Article 11 of the DSU, c ontrary to the Panel's terms of reference, and 
contrary to the aims of resolving the matter at i ssue and securing a positive solution to the dispute.  In 
short, the Panel cannot a ccede to Mexico's request  without disregarding critical provisions of the DSU 
and undermining the effective functioning of the WTO dispute settlement process. 
5.18 For these reasons, Canada respectfully submits that the Panel must deny Mexico's request to 
decline to exercise its jurisdiction in this case. 
B. CHINA  
1. Introduction 
5.19 China notices that this dispute raises some important issues in the interpretation and 
application of GATT 1994 Article III. In this submission, China will focus on two issues:  
 (i) Whether the HFCS can be deemed to be taxed in the meaning of GATT 1994 
Article III:2, second sentence, based only on th e fact that soft drinks and beverages 
sweetened with HFCS have been taxed in the meaning of GATT Article III:2, second 
sentence; and 
  (ii) Whether cane sugar can be established as the "like product" of HFCS under GATT 
Article III:4 conclusively with the analysis  on "directly competitive and substitutable" 
products in the meaning of GATT Article III:2, second sentence. 
 2. Whether the HFCS can be deemed to be taxed in the meaning of GATT 1994 
Article III:2, second sentence, based only on the fact that soft drinks and beverages sweetened with HFCS have been taxed in the meaning of GATT Article III:2 second sentence 
5.20 In the opinion of the United States, HFCS and cane sugar have been di ssimilarly taxed by the 
"HFCS soft drink tax" in the meaning of GATT Artic le III:2, second sentence. This raises an issue 
with regard to the interpretation and applicati on of GATT Article III:2, second sentence: that is 
whether a product (HFCS in this case), can be deemed to be taxed simply because it is a component of 
another product, soft drinks taxed by IEPS measu re in the meaning of GATT Article III:2, second 
sentence.  
5.21 Taking into account Mexico's HFCS soft dr ink tax measure itself and paragraph 2 of 
Article III of GATT 1994, China understands that products  subject to the HFCS soft drink tax are soft 
drinks and syrups sweetened with HFCS, not the HFCS itself when used as a component in making 
the products, soft drinks and syrups. As such  China cannot concur with the United States' 
interpretation of the applicability of the HFCS soft dr ink tax on HFCS used as sweetener in soft drinks 
and syrups, other than the soft drinks and syrups using HFCS as sweetener. 
5.22 Moreover, in the context of GATT Article III:2,  second sentence, the word "apply" when used 
in defining the scope of a statute, shall be read as application of a tax to the objects explicitly referred 
to in the language of the statutes, and not any ot hers that have not been explicitly defined as 
applicable in the statute. This is supported by the dictionary explanation of "apply" both in the legal 
and ordinary sense of the word.  
5.23 From the above, China believes that "apply" lead s to an explicit referring of object. In other 
words, from the point of view of the measure at issue, the word "apply" in Article III:2 of GATT WT/DS308/R 
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 1994, as well as the word "taxed product" in paragraph 2 of Ad Article III shall be construed narrowly 
and the application of principles in Article III:2 of GATT 1994 shall not be extended to an item not 
explicitly defined within the scope of the HFCS soft drink tax. 
3. Whether cane sugar can be established as the "like product" of HFCS under GATT 
Article III:4 conclusively with the analysis on "directly competitive and substitutable 
products" within the meaning of Article III:2, second sentence of GATT1994 
5.24 On this issue, the United Stat es claims that HFCS and cane s ugar are "like products" within 
the meaning of Article III:4 of GATT 1994.  The Un ited States also believes that HFCS imported 
from United States competed succes sfully whereas Mexican bottlers were rapidly and increasingly 
substituting HFCS for sugar, and that led the Mexi can Congress to impose the HFCS Soft Drink Tax 
and Distribution Tax.
146  
5.25 In proving the likeness of HFCS and cane suga r within the meaning of Article III:4, United 
States mentions four elements relevant to the like product inquiry that the Appellate Body examined 
more extensively in EC – Asbestos.147  It seems that the United States' assertion of likeness of cane 
sugar of Mexican origin with the US-imported HFCS is built first on its belief of a competitive 
relationship between cane sugar and HFCS, which is, as the United States citing the Appellate Body 
in EC – Asbestos148, "fundamentally" of like products under Article III:4 of the GATT.149  
5.26 It is noteworthy that based on its understa nding of some of the precedent panel and/or 
Appellate Body reports, the United States tends to  equate the two distinct concepts, the "like 
products" within the meaning of Article III:4 of GATT 1994 and "directly competitive and 
substitutable products" within the meaning of Artic le III:2 of GATT 1994, second sentence. However, 
this approach calls for further analysis. 
5.27 Recognizing the relevancy of competitiveness and substitutability to product likeness under 
Article III:4 of GATT 1994, China notes that the Appellate Body in EC – Asbestos  had further 
pointed out that  "We are not saying that all products which are in some competitive relationship are 'like products' under Article III:4."  Furthermore, th e Appellate Body concluded that the scope of 
"like" in GATT Article III:4 is broader than the sc ope of "like" in GATT Article III:2 first sentence, 
but not broader than the combined product scope of two sentences of Article III:2, i.e. both "like product" and the "directly compe titive and substitutable" products.
150   
5.28 In addition, while acknowledging the four elements  criteria as "a framework for analysing the 
'likeness' of products on a case-by-case basis" , the Appellate Body has emphasized that:  
"These criteria are, it is well to bear in mi nd, simply tools to assist in the task of 
sorting and examining the relevant evidence. They are neither a treaty-mandated nor a 
closed list of criteria that will determine the legal characteristics of products. More 
important, the adoption of a particular framework to aid in the examination of evidence does not dissolve the duty or the n eed to examine, in each case, all of the 
pertinent evidence."
151    
                                                      
146 Id. 
147 Appellate Body Report on  EC – Asbestos , para.101. 
148 Appellate Body Report on  EC – Asbestos , para.98-99. 
149 United States first written submission, para.157. 
150 Appellate Body Report on EC – Asbestos , para. 99. 
151 Appellate Body Report on EC – Asbestos , paras.102.  WT/DS308/R 
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 5.29 In view of the different language of GATT Articles III:2 and GATT Article III:4, and the 
reluctance of the Appellate Body to equate the pr oduct scope of GATT Article III:4 with that of 
GATT Article III:2, second sentence, China believes th at the scope of "like products" in the meaning 
of Article III:4 should not be taken as identical to  "direct competitive and substitutable" within the 
meaning GATT Article III:2, second sentence. Othe rwise, the drafters of GATT1994 and/or the 
Appellate Body would have specified in that re gard, and therefore it deserves a separate and full-
length analysis in an asserti on of likeness of products. 
5.30 Subject to further analysis of application of th e four elements criteria by the United States in 
this case, China expects that the panel will evaluate all factors pertinent to this case in determining the 
likeness of products under Article III:4 in this case. 
C. THE EUROPEAN COMMUNITIES  
1. The preliminary ruling requested by Mexico th at the panel should decline to exercise its 
jurisdiction 
5.31 In its defence, Mexico has stated that it cons iders that the dispute before the Panel has its 
roots in a wider dispute with the United States in the context of NAFTA. For this reason, Mexico has 
requested the Panel to issue a preliminary ruling by  which the Panel should decline to exercise its 
jurisdiction. 
5.32 In its defence, Mexico has recognised that the Panel does have prima facie jurisdiction to hear 
the case brought by the United States. However, Mexi co also submits that the Panel has competence 
to decline to exercise its jurisdiction. In support of  this view, Mexico refers in particular to the 
possibility for WTO panels to exercise "judicial economy". Mexico further submits that the United 
States case is part of a larger dispute under NAFTA, and that addressing the United States claims 
under the GATT would therefore not secure a positive solution to the dispute. 
5.33 Article 11 of the DSU describes the function of panels as requiring the Panel to make an 
objective assessment of the matter before it, including an objective assessment of the facts of the case 
and the applicability of and conformity with the relevant covered agreements , and to make such other 
findings as will assist the DSB in making the recommenda tions or in giving the rulings provided for in 
the covered agreements. This function is also reflected  in the standard terms of reference provided for 
in Article 7 (1) of the DSU. 
5.34 In the present case, the United States claims are based on Article III of the GATT 1994, i.e. a 
provision of a covered agreement. There is no dou bt, and Mexico does not contest, that the Panel 
therefore has jurisdiction to examine the United States claims under this provision, and to make 
findings to assist the DSB in making appropriate recommendations. 
5.35 The EC does not agree, however, that the Panel c ould decline to exercise this jurisdiction on 
the basis of the notion of "judicial economy". In accordance with the jurispru dence of the Appellate 
Body, the notion of judicial economy enables a Panel to omit making a finding on a specific claim, when such a finding is not necessary for resolvin g the dispute under the covered agreements, for 
instance because the measure has alre ady been found to be in violation of another provision of the 
covered agreements. In contrast, the notion of judi cial economy does not entitle a panel to abstain 
completely from making findings in a dispute properly before it. 
5.36 In support of its view, Mexico has referred to the GATT Panel Report in US – Nicaraguan 
Trade
 . However, in this case, which predates the entry into force of the WTO Agreement, the Panel's 
terms of reference specifically excluded cons ideration of the United States' defence under WT/DS308/R 
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 Article XXI(b)(iii) of the GATT 1994. Accordingly,  this report cannot serve as precedent for the 
present Panel, which has standard terms of refere nce in accordance with Article 7 (1) of the DSU. 
5.37 The European Communities would like to add that  it is not unusual that the same dispute 
might arise, fully or partially, under the WTO a nd under international agreements outside the WTO. 
This should not necessarily prevent a WTO panel from resolving a dispute properly brought before it. 
A recent example in point would be Argentina – Poultry Anti-Dumping Duties , in which the Panel 
considered the dispute despite the fact that the same measures had previously been the subject of 
dispute settlement under Mercosur. 
5.38 The EC takes note that Mexico has also compla ined that the United States has not agreed to 
submit the broader dispute to dispute settlement  under NAFTA. The EC is not in a position to 
comment on the dispute settlement procedures unde r NAFTA. However, the absence of recourse to 
dispute settlement under NAFTA cannot justify an exercise of "judicial economy" on the part of a WTO panel. Whether the attitude of the United States might be legally relevant  in other regards under 
the WTO agreements, for instance from the point of view of good faith or estoppel, need not be further examined here, since Mexico h as not so far raised this question. 
2. The relationship of the WTO agreements and other international agreements  
5.39 The EC is not in a position to comment on Mexico's dispute with the United States under 
NAFTA. However, since Mexico has evoked the NA FTA context in the present dispute, the EC 
considers it appropriate to offer some preliminar y remarks regarding the relationship between the 
WTO Agreements and other international agreements. 
5.40 In accordance with Articles 7(1) and 11 of the DSU, the function of the Panel is to make 
findings in the light of the provisions of the covere d agreements. However, this does not mean that the 
Panel cannot take into account ot her provisions of international law, when such provisions are 
relevant to the dispute before it. In fact, the A ppellate Body has confirmed that the WTO Agreements 
are not to be read in "clinical isolation" from public international law. In the view of the EC, it is therefore not excluded that applicable rules of international law may also include bilateral or 
multilateral agreements between the pa rties, when such rules are releva nt for the decision of a dispute 
before a panel. 
5.41 In the present case, Mexico has so far not invoked any specific provision of NAFTA or 
general rules of public internationa l law in its defence against the claims of the United States. The 
Panel may therefore not need to address the comp lex question of the relationship between the WTO 
agreements and other bilateral or multilateral agre ements. However, should this issue arise, the EC 
submits that the Panel should approach it bearing in  mind the fundamental importance of this question 
and taking into account the considerations set out above. 
3. The claims raised by the United States under Article III:2 of the GATT 1994 
5.42 As regards the United States claim under the fi rst sentence of Article III:2 GATT, the United 
States has explained in considerable detail that  beverages sweetened w ith HFCS and beverages 
sweetened with cane sugar are like products. The EC shares this analysis of the United States. The EC 
would like to add, however, that this applies not only in the comparison of beverages sweetened with 
HFCS and cane sugar. For instance, it is clear that beverages sweetened with other types of sugar, and 
notably with beet sugar as the main type of suga r produced in the EC, would equally have to be 
considered to be "like" bevera ges sweetened with cane sugar. 
5.43 As regards the question whether the Mexi can measure involves taxation of imported 
beverages in excess of domestic beverages, the United States analysis appears to be based on a  WT/DS308/R 
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 comparison between beverages sweetened with HFCS  and beverages sweetened with cane sugar. The 
understanding therefore seems to be that all beve rages sweetened w ith cane sugar, whether domestic 
or imported, are exempted from the Mexican tax measu re. However, in the factual part of the United 
States submission, the United States has interpre ted the Mexican measure to impose the tax on 
imported beverages sweetened with any sweetener , including beverages sweetened with cane sugar. If 
this interpretation, on which Mexico has not so fa r commented, were correct, then at least as far as 
beverages sweetened with cane s ugar are concerned, the Mexican measure would clearly constitute 
taxation of imported beverages in excess of domestic beverages, i.e. de jure  discrimination against 
imports. 
5.44 In contrast, the situation may be somewhat diffe rent in so far as the United States challenges 
the Mexican taxation of imports of HFCS-sweetened beverages. The United States submits that 
whereas virtually all beverages produced in the Un ited States are sweetened with HFCS, all beverages 
regular soft drinks and syrups produced in Mexico  are sweetened with cane sugar. Whereas this may 
be true at present, this statement was not true at  the time the Mexican measure was adopted. In fact, 
the United States itself submits that before the im position of the Mexican tax measure, Mexican soft 
drink producers had begun to switch over to use of HFCS, and that accordingly a sizeable proportion 
of soft drinks produced in Mexico was sweetened with HFCS. 
5.45 It still appears that at the time the Mexican measure was adopted, a significant proportion of 
beverages produced in Mexico were sweetened wi th cane sugar, whereas virtually all beverages 
produced in the United States were sweetened with HFCS. To this extent, it may be justified to 
consider that the Mexican measure overall invol ved taxation of imported products in excess of 
domestic products. Moreover, it can be argued that by maintaining the tax measure in a situation 
where virtually all beverages produced in Mexico are sweetened with cane sugar, whereas imported 
beverages are sweetened with other sweeteners, Me xico effectively also taxes imported products in 
excess of domestic products.  
5.46 In response to the United Stat es claim under the second sentence of Article III:2 of the GATT 
1994, given in particular the intr oductory language of the Ad note to Article III:2 of the GATT 1994, 
it might be questioned whether a measure which is in compatible with the first sentence of Article III:2 
of the GATT 1994 can also be incompatible with th e second sentence thereof. In any event, should the 
Panel find that the Mexican treatment of imported beve rages is incompatible with the first sentence of 
Article III:2 GATT, it may no longer need to a ddress the United States claim under the second 
sentence. 
5.47 As regards discriminatory taxation of HFCS and other sweeteners, the second sentence of 
Article III:2 of the GATT 1994 provides that no contra cting party shall otherwise apply internal taxes 
or other internal charges to imported or domestic products in a manner contrary to the principles set 
forth in paragraph 1. The Ad note to Article III:2 provides further that a "tax conforming to the 
requirements of the first sentence of  paragraph 2 would be considered  to be inconsistent with the 
provisions of the second sentence only in cases where competition was involved between, on the one 
hand, the taxed product, and, on the other hand, a directly competitive or s ubstitutable product which 
was not similarly taxed". 
5.48 In its submission, the United States has di scussed whether HFCS and cane sugar can be 
regarded as directly competitive or substitutable prod ucts. In this respect, the EC would remark that 
there are certain differences between HFCS and cane sugar as regards end-uses and consumer 
preferences. In particular, HFCS is exclusivel y used in industrial production of beverages and 
possibly other products. In contrast , cane sugar is also used in house holds for a variety of purposes, 
which is not the case for HFCS. This notwithstanding, the EC would agree that there is a considerable 
overlap in end-uses and preferences between HFCS a nd cane sugar. For this reason, the EC can agree WT/DS308/R 
Page 102  
 
 with the United States submission that HFCS and cane sugar are directly competitive or substitutable 
products at least to the extent that use fo r the sweetening of beverages is concerned. 
5.49 Furthermore, it follows from the United Stat es submission that HFCS is largely imported 
from the United States, whereas cane sugar is la rgely a domestic and not an imported product in 
Mexico. Accordingly, it can be considered that  the Mexican measure involves taxation of imported 
products in excess of domestic products. 
4. The defence presented by Mexico under Article XX(d) of the GATT 1994 
5.50 The EC cannot comment on Mexico's clai m against the United States under NAFTA. 
However, the EC considers that Mexico's defe nce under Article XX(d) of the GATT 1994  in the 
present case raises serious systemic issues and therefore warrants several remarks. 
5.51 First, Article XX(d) justifies only measures necessary to secure compliance with "laws or 
regulations". Such laws or regulations must be laws  or regulations applicable  in the internal legal 
order of the WTO Member in question. At a ge neral level, the European Communities would not 
exclude that an international agreement concluded by a WTO Member might also constitute a "law or 
regulation" within the meaning of Article XX(d) of the GATT 1994, provided that the agreement is 
directly applicable in the internal legal order of  such member, and is therefore capable of being 
directly enforced on individuals. However, Mexico has not provided any information on the status of NAFTA in its internal legal order. More importan tly still, it appears that the provisions invoked by 
Mexico impose obligations primarily on the United States, and are therefore not capable of being 
enforced in the legal order of Mexico. 
5.52 Secondly, the measure must be necessary to " secure compliance" with the law or regulation. 
As just set out, this compliance must be secured with in the legal order of the Member in question. The 
object and purpose of measures under Article XX(d ) of the GATT 1994 is not to secure compliance 
with the obligations incumbent on other WTO Member s under public international law. This is also 
apparent from the examples listed in Article XX(d) of the GATT 1994, which include customs 
enforcement, the protection of patents, trade ma rks and copyrights, and the prevention of deceptive 
practices. 
5.53 Third, the EC notes that the Mexican measur e does not only apply to beverages sweetened 
with HFCS imported from the United States, but would also apply to, for instance, beverages sweetened with beet sugar imported from any other WTO Member, including the EC. It is clear, that 
this could not be justified as securing compliance with obligations under NAFTA. 
5.54 At a systemic level, Mexico's interpretati on would transform Article XX(d) of the GATT 
1994 into an authorisation of counter-measures within the meaning of public international law. It must 
be assumed, however, that if the contracting parti es had intended such an interpretation, they would 
have expressed this in a clearer way. Moreover, un der customary international law, as codified in the 
International Law Commission's Articles on Respons ibility of States for Internationally Wrongful 
Acts, counter-measures are subject to strict subs tantive and procedural conditions, which are not 
contained in Article XX(d) of the GATT 1994.  
5.55 The EC notes that Mexico has not so far jus tified its measure as a counter-measure under 
customary international law. Such a justification would already meet the objection that the Mexican 
measure does not only apply to products from the United States, but from anywhere. In any event, 
should Mexico still attempt such a justification, th en this would also raise the difficult question of 
whether the concept of counter-measures is available to justify the violation of WTO obligations. In 
accordance with Article 50 of the Internationa l Law Commission's Articles on Responsibility of 
States for Internationally Wrongful Acts, this would not be the case if the WTO agreements are to be  WT/DS308/R 
 Page 103 
 
 
 considered as a lex specialis  precluding the taking of counter-measures. This complex question has 
been addressed in the report of the Interna tional Law Commission at its fifty-third session. 
D. GUATEMALA  
5.56 Guatemala is grateful for the opportunity to pa rticipate in this meeting and to express its 
views.  It is participating in this dispute because it has a trade interest  and a systemic interest  in matter 
at issue. 
5.57 Guatemala's trade interest  in this dispute is as outlined below. 
5.58 In spite of the various distortions and problems connected with access to international 
markets, Guatemala has an efficient and productiv e sugar sector.  Indeed, Guatemala ranks seventh 
among the world's leading sugar exporters;  its pr oduction costs are among the lowest, and its output 
per hectare among the highest. 
5.59 Sugar production in Guatemala is not only an important source of subsistence in the rural 
areas, but it provides benefits and elementary social assistance152 to the population of Guatemala, 
including education and health programmes de veloped and promoted by sugar producers. 
5.60 Thus, given the characteristics of the Mexican sugar industry153, Guatemala understands the 
decisive role played by that industry in Mexico's development. 
5.61 In view of the above, Guatemala thinks that the Panel should heed Mexico's call154 to 
consider, in the course of its deliberations, the im portance of the sugar industry in Mexico, and the 
implications for the country of reforms to that sector. 
5.62 As regards Guatemala's systemic interest  in this dispute, there are two specific elements to be 
mentioned. 
5.63 The first  is to ensure that the WTO agreements , in particular the Dispute Settlement 
Understanding and Articles III and XX of the GATT, are properly interpreted. 
5.64 It is in this context that Guatemala would lik e to express its views regarding the Government 
of Mexico's request that the Panel decline to exercise its jurisdiction.155 
5.65 Guatemala considers that the dispute settleme nt system serves to preserve the rights and 
obligations of Members unde r the covered agreements.156 
5.66 In this dispute, the United States considered Mexi co's tax measures to be  inconsistent with its 
obligations under Article III of the GATT 1994, and therefore requested the Dispute Settlement Body 
to establish a panel pursuant to Article 6 of the DSU to examine the matter, with the standard terms of 
reference as set out in Article 7.1 of the DSU.157 
                                                      
152 The unique initiatives that make Guatemala the world leader in social activities promoted by the 
sugar industry have contributed, in particular, to the eradication of childhood blindness and the significant 
decline in the infant mortality rate. 
153 Section II A of the first written su bmission of Mexico, 1 November 2004. 
154 Section III C of the first written submission of Mexico, 1 November 2004. 
155 Section III B of the first written submission of Mexico, 1 November 2004. 
156 Article 3.2 of the DSU. 
157 Document WT7DS308/4 of 11 June 2004. WT/DS308/R 
Page 104  
 
 5.67 In Guatemala's view, the Panel's task is to  examine the complaint brought by the United 
States with respect to the violation of a covered agreement in order to preserve the rights of that 
Member under that agreement. 
5.68 Moreover, according to Article 7 of the DSU, the terms of reference and jurisdiction of a 
panel are determined by the complaint brought by the complaining party, which must satisfy the 
requirements laid down in Article 6 of the DSU. 
5.69 On that basis, Guatemala considers that the Pane l has the jurisdiction to examine the matter at 
issue.  However, as confirmed by the Appellate Body
158 and pursuant to Article 6.1 of the DSU, the 
establishment of a panel by the DSB is practica lly automatic, and as the DSB does not scrutinize 
requests for the establishment of a panel in deta il, it is incumbent upon the Panel to examine the 
request carefully to ensure its compliance with both the letter and the spirit of Article 6.2 of the DSU. 
5.70 The second  element of systemic interest to Guatemala is the importance of regional trade 
agreements for the multilateral trading system. 
5.71 The North American Free Trade Agreement (NAFTA) between the United States, Canada, 
and Mexico has been the main source of insp iration or the model for other WTO Members in 
negotiating free trade agreements. 
5.72 NAFTA is a framework of model regulations fo r the expansion of free and fair trade among 
its members.  This fact should be stressed in orde r to remind the parties to the present dispute of the 
importance of NAFTA in the context of international trade. 
5.73 Furthermore, NAFTA also comprises various mechanisms for settling trade disputes between 
its members. 
5.74 In its first written submission, Mexico sets forth a number of circumstances relating to 
NAFTA obligations.  Guatemala is not in a position to  pass judgement in that respect, nor will it take 
a stance as to whether or not there has been any kind of violation of NAFTA rules.  However, 
Guatemala would like to mention two basic points that are of its interest. 
5.75 Firstly, Guatemala considers the WTO dispute settlement mechanism to be a system that 
brings legal certainty to trade relations between Members, and hence, there is nothing to prevent a 
party from resorting to the system in relation to matters covered by the WTO agreements.  However, 
it is preferable for members of an agreement to see k practical solutions that help to strengthen free 
trade within the dispute settlement mechan ism provided for under that agreement. 
5.76 Secondly, free trade agreements like NAFTA mu st be seen as milestones in the process of 
liberalizing multilateral trade.  Free trade agreements  are not at variance with the multilateral trading 
system – on the contrary, they are complementary. 
5.77 Thus, it is impermissible to impede the exercise  rights or to try to evade obligations under one 
of these forums by resorting to the other.  Moreover, a violation of a rule under a free trade agreement cannot in itself be "isolated" or "exempt" from repercussions in the multilateral trading system; 
consequently, it is equall y impermissible for Members to adopt unilateral measures to try to correct 
the situation.  Such measures are a th reat to the multilateral trading system. 
5.78 Finally, Guatemala considers that, to the extent that these free trade agreements fit together to 
form the "multilateral system", Members should try to ensure that the commitments assumed 
                                                     
 
158 Appellate Body Report on EC – Bananas III , paragraph 142.  WT/DS308/R 
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 thereunder are not merely rhetorical and that any conflicts or disputes arising from those agreements 
are settled by consensus. 
E. JAPAN  
1. Analysis of IEPS's conformity with the first sentence of Article III:2 of the GATT 1994 
5.79 The United States claims that provisions which tax imported soft drinks  and other beverages 
(hereinafter collectively "soft drinks") as well as imported syrups, concentrates, powders, essences 
and extracts that can be diluted to produce such be verages (hereinafter collectively "syrups") and the 
agency, representation, brokerage, consignment and distribution (hereinafter collectively 
"distribution") of soft drinks and syrups sweetened with HFCS pursuant to IEPS, are inconsistent with 
Article III:2, first sentence.   
5.80 As confirmed by the Appellate Body in Japan – Alcoholic Beverages II , a tax measure is 
inconsistent with the first sentence of Article III: 2 when: (i) the taxed imported and domestic products 
are "like," and (ii) the taxes applied to the impor ted products are "in excess of" those applied to like 
domestic products.159  As regards the "in excess of" requireme nt, past panels have established that 
"[e]ven the smallest amount of 'excess' is too much"160 and the prohibition thereof is "not conditional 
on a 'trade effects test' nor is it qualified by a de minimis standard."161  In the present case, it is 
relatively straightforward that the second requirement of "in excess of" will be met, since imported soft drinks and syrups as well as the distribution of soft drinks and syrups using HFCS are taxed an additional 20 per cent as opposed to products us ing cane sugar or the distribution thereof.  
Accordingly, the determination of "like products " becomes crucial in finding whether there is a 
violation of the first sentence of  Article III:2 in the present case. 
5.81 Japan would like to address one preliminary point before going into the issue of determining 
what "like products" under the first sentence of Artic le III:2 are.  In its first written submission, the 
United States compares soft drinks and syrups sw eetened with HFCS and those sweetened with cane 
sugar to be "like products".
162  However, the IEPS on its face does not discriminate against imports of 
soft drinks and syrups sweetened with HFCS, as th ose produced domestically are also subject to the 
same taxation as imports, and an issue of whether su ch comparison is appropriate arises.  The first 
sentence of Article III:2 settles this issue by stipulatin g that such an origin neutral measure can also be 
challenged under Article III:2.  The first sentenc e of Article III:2 clearly stipulates that the 
comparison to be made is between internal taxes on 'imported products and … those applied to like 
domestic products.'"163  In other words, the point of contenti on in a case regarding the first sentence of 
Article III:2 is whether imported products are si milar enough to be considered "like" domestic 
products that are accorded more favourable treatment.  If this is established, it is irrelevant whether an 
imported product and an identical do mestic product of the particular import are treated equally under 
the tax measure.164  Therefore, the point of contention th e United States has raised is appropriate. 
5.82 As to the interpretation of "like products" under the first sentence of Article III:2, there is no 
treaty-mandated definition of how this shall be  determined or a closed list of criteria.165  T h e  
                                                      
159 Appellate Body Report on Japan – Alcoholic Beverages II , Section H.1, pp.18-19, DSR 1996:I, 97, 
at 111. 
160 Id., Section H.1.(b), p.23, DSR 1996:I, 97, at 115. 
161 Id., Section H.1.(b), p.23, DSR 1996:I, 97, at 115; GATT Panel Report, US – Malt Beverages 
para. 5.6. See also , Brazil – Internal Taxes, para.16; US – Superfund , para. 5.1.9; Japan – Alcoholic Beverages I  
para.5.8. 
162 United States first written submission, Section V.B.1, para. 76. 
163 Panel Report on Japan Alcoholic Beverages I , para. 5.5(a). 
164 See GATT Panel Report on Japan –  Alcoholic Beverages I , para.5.5. 
165 Appellate Body Report on  EC – Asbestos , para.102. WT/DS308/R 
Page 106  
 
 Appellate Body in Japan – Alcoholic Beverages II  confirmed the "practice under the GATT 1947 of 
determining whether imported and domestic products are 'like' on a case-by-case basis," following the 
approach the Working Party Report on Border Tax Adjustments had taken to set out a case-by-case 
interpretation of what "like products" shall m ean within different provisions of the GATT 1947.
166 167  
5.83 In interpreting the scope of "like products" unde r the first sentence of Article III:2 in a case-
by-case manner, previous panel and appellate body reports have employ ed a list of criteria, of which 
commonly employed criteria are: (i) the product's pr operties, nature and qua lity, (ii) product's end-
uses in a given market, (iii) consumer's tastes and habits and (iv) tariff classification.168   
5.84 As a corollary of the fact that the products  compared in likeness in each individual case are 
different and therefore necessitate a case-by-case analysis, it is also apparent that when applying a set 
of criteria to determine "likeness," the weight put on each criterion should be adjusted to 
accommodate the characteristics of the products con cerned in individual cases.  In other words, one 
criterion may be more decisive than others in a pa rticular case, and the decisive criterion may differ 
from case to case.169   
5.85 The analysis of the correct application of the above criteria is mainly factual.  Therefore, 
Japan, at this juncture, will confin e its comments on the following points. 
5.86 Firstly, in light of the fact that the products concerned in the case at hand are soft drinks and 
syrups, which are articles of taste to be provided to consumers, and the similarity between such 
products with alcoholic beverages contemplated in Japan – Alcoholic Beverages II in the sense that 
both are beverages (or extracts which can be diluted into beverages) for mass consumption, Japan is 
of the view that the four criteria above are helpfu l in determining whether the products concerned are 
"like products."  Therefore it is appropriate to apply these criteria as the United States has pointed out 
in its submission. 
5.87 Furthermore, due to the similarities between such products concerned in Japan – Alcoholic 
Beverages II  and those in the case at hand, it s hould be of reference that in Japan – Alcoholic 
Beverages II , the likeness between shochu and vodka was determined based on the similarities in 
physical characteristics and end-uses of products, sta ting that both are "white/clean spirits, made of 
similar raw materials, and the end-uses were virtually identical."  The Panel on Japan – Alcoholic 
Beverages II  also noted that shochu and vodka were classi fied in the same heading under Japan's tax 
classification at the time, and were covered by th e same Japanese tariff binding at the time of its 
negotiation.170 
5.88 Secondly, with regard to the criterion of cons umer's tastes and habits, in the present case, the 
consumers of soft drinks and syrups are individuals  in Mexico.  Accordingly, the relevant evidence 
would be results of consumer survey s conducted on consumers in Mexico.  However, the current 
consumer perception may not be available due to  the imposition of the tax measure, which has the 
effects of restricting the production and importation of soft drinks and syrups sweetened by HFCS.  In 
this respect, the statement made by the Panel in Japan – Alcoholic Beverages II  should be recalled: 
                                                      
166 The Report of the Working Party on Border Tax Adjustments, BISD 18S/97, para. 18 states that 
such interpretation "would allow a fa ir assessment in each case of the di fferent elements that constitute a 
'similar’ product."  See also Panel Report, Japan – Alcoholic Beverages II,  , para. 6.21. 
167 Appellate Body Report on Japan – Alcoholic Beverages II , Section. H.1.(a), p.20, DSR 1996:I, 97, 
at 113. 
168 Id.,Section. H.1.(a), pp.20-22, DSR 1996:I, 97, at 113-114. 
169 See Appellate Body Report on EC – Asbestos , para.146. 
170 Panel Report on Japan – Alcoholic Beverages II, para. 6.23.  WT/DS308/R 
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 "[A] tax system that discriminates against imports had the consequence of creating 
and even freezing preferences for domestic goods."171 
5.89 Thirdly, the United States, in its submission,  has referred to the Mexican tariff schedule.172  It 
should be noted that in order to apply the criteri on of tariff classification, consideration should be 
given on whether the particular tariff classification is not too broad to be used for such comparison.173 
2. Analysis of IEPS's conformity with the second sentence of Article III:2 of the GATT 
1994 
5.90 The United States alleges that taxes pursuant to  IEPS is inconsistent with the second sentence 
of Article III:2 of the GATT as taxes applied on impor ted HFCS, imported soft drinks and syrups, and 
the agency, representation, brokerage, consignment and distribution of soft drinks and syrups 
sweetened with HFCS. 
5.91 As provided in the second sentence of Article III:2 and confirmed by the Appellate Body 
report in Japan – Alcoholic Beverages II174, whether a tax measure is in consistent with the second 
sentence of Article III:2 is determined by three sep arate elements: (i) whether the products concerned 
are directly competitive or substitutable, (ii) wh ether the directly competitive products are "not 
similarly taxed"; and (iii) whether the dissimilar ta xation is applied "so as to afford protection to 
domestic production."  
5.92 With regard to the first element above, Japan agrees with the United States that, in assessing 
the competitive relationship between products, the criteria should be determined on a "case-by-case" 
basis in light of the relevant facts in the case.175  Examples of specific criteria employed to determine 
whether products are "directly compe titive or substitutable" are: physi cal characteristics, the channels 
of distribution, the end-uses of the products, pri ce relationship (including cross-price elasticities) 
among other relevant characteristics176, which should be considered in view of the relevant "market 
place."177  
5.93 The United States, in its submission, refers to the results of the SECOFI anti-dumping 
investigation of HFCS published on 23 January 1998  as Mexico's determination that cane sugar and 
HFCS share the same essential physical characteristics.178  Japan is concerned, however, whether the 
likeness issue in an anti-dumping case could be equa ted with the issue of direct competitiveness under 
Article III:2.179 
                                                      
171 Id., Panel Report, para.6.28. 
172 United States first written submission, Section V.B.1(d), paras.3-4. 
173 Appellate Body Report on Japan – Alcoholic Beverages II , Section H.1.(a), p.22, DSR 1996:I, 97, 
at 115. 
174 Id., Section H.2., p.24, , DSR 1996:I, 97, at 116. 
175 United States first written submission, Section V. C.1(a), para. 15 (however, the relevant page 
number of the AB Report referred to in the US submission should be 25, not 20).  See also  Panel Report on 
Japan – Alcoholic Beverages II, para. 6.22. 
176 Appellate Body Report on Japan – Alcoholic Beverages II , Section H.2(a), p.25; GATT Panel 
Report on Japan – Alcoholic Beverages I , para. 6.22; Panel Report on Chile  – Alcoholic Beverages , para. 7.30. 
177 GATT Panel Report on Japan – Alcoholic Beverages I , para. 6.22, Appellate Body Report, Japan – 
Alcoholic Beverages II , Section H.2(a), p.25, , DSR 1996:I, 97, at 117. 
178 United States first written submission, V.C.1(i), para.23. 
179 GATT Panel Report on Japan – Alcoholic Beverages I , para. 5.6 stated that: "The Panel was aware 
of the more specific definition of the term 'like product' in Article 2:2 of the 1979 Antidumping Agreement (BISD 26S/172) but did not consider this very narrow definition for the purpose of antidumping proceedings to 
be suitable for the different purpose of GATT Article III:2." WT/DS308/R 
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 5.94 With regard to the second element, "the amount of differential taxation must be more than de 
minimis  to be deemed 'not simila rly taxed' in any given case".
180  Although "whether any particular 
differential amount of taxation is de minimis  or is not … must … be determined on a case-by-case 
basis181," in the present case, it appears relatively clear that an additional tax of 20 per cent in question 
is beyond de minimis . 
5.95 With regard to the third element, whether a tax measure is applied "so as to afford protection" 
to domestic products is determined through the "desi gn, architecture and structure" of the measure, 
and is not an issue of intent182, as the United States has rightly claimed.  Thus, an examination of the 
stated objectives of the particular tax measure is i rrelevant in determining an y inconsistency with the 
second sentence of  Article III:2 as a general rule.  However, neither the complainant nor the panel is 
prevented from examining the relevancy between the features of a measure revealed by the "design, 
architecture and structure" and the stated objective of such a measure.  In  Chile - Alcoholic Beverages,  
the Appellate Body confirmed that a panel can "try to relate the observable structural features of the 
measure with its declared purposes, a task that is  unavoidable in appraising the application of the 
measure as protective or not of domestic production."183 To this extent, the United States' reference to 
the Mexican objectives of the tax measure could be relevant.184 
VI. INTERIM REVIEW 
6.1 The Panel issued its interim report to the parties on 27 June 2005.  On 11 July 2005, the 
United States and Mexico submitted written comment s and requested the Panel to review precise 
aspects of the interim report.  On 25 July 2005, the United States and Mexico submitted written comments on each other's comments and requests for interim review. 
6.2 The Panel has modified its report, where appropr iate, in light of the parties' comments and 
requests, as explained below.  The Panel has also made certain revisions and technical corrections for 
the purposes of clarity and accuracy.  References to paragraph numbers and footnotes in Section VI of this report refer to those in the in terim report, except as otherwise noted. 
A. C
LERICAL AND EDITORIAL CHANGES  
6.3 The United States suggests certain changes to correct  clerical errors contained in the different 
sections of the interim report, and to further clar ify the report.  The Panel has taken account of the 
United States' suggestions and modified most of th e indicated paragraphs.  The Panel has also made 
some additional clerical and editorial changes throu ghout the report.  It has also corrected the numbers 
of paragraphs from the English a nd Spanish versions of the interim report issued to the parties. 
                                                      
180 Appellate Body Report on Japan – Alcoholic Beverages II , Section H.2.(b), p. 27, DSR 1996:I, 97, 
at 119; Panel Report on Japan – Alcoholic Beverages II , para.6.33. 
181 Id. 
182 The Appellate Body in Japan – Alcoholic Beverages II set out as follows: 
 
"It is not necessary for a panel to sort through the many reasons legislators and regulators 
often have for what they do and weigh the relative significance of those reasons to establish legislative or regulatory intent. If the measure is applied to imported or domestic products so 
as to afford protection to domestic production, then it does not matter that there may not have 
been any desire to engage in protectionism in the minds of the legislators or the regulators who imposed the measure" (Appellate Body Report, Japan – Alcoholic Beverages II , Section 
H.2.(c), pp. 27-28, DSR 1996:I, 97, at 119.) 
 
183 Appellate Body Report on Chile – Alcoholic Beverages , para. 72. 
184 United States first written submission, V.C.1(c), para. 36.  WT/DS308/R 
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 6.4 Mexico notes that its comments on the United St ates' responses to questions posed by the 
Panel after the second substantive meeting had not b een included in Annex C of the interim report.  
The Panel has amended this omission for the final report. 
B. FACTUAL ASPECTS  
6.5 The Unites States requests the Panel to modify the interim report's language in certain 
paragraphs in order to better reflect the facts dem onstrated by evidence submitted by the parties.  The 
United States also suggests that some cross-references  and citation of evidence be added to the text of 
the Report.  The Panel has modified the language of the report and added the references as requested, 
as well as other references not indicated by the United States. 
C. ARGUMENTS OF THE PARTIES  
6.6 The United States suggests modifications in certain  paragraphs of the interim report, relating 
to Mexico's arguments.  The Panel has decided to keep the relevant text as it had been originally 
presented by Mexico. 
D. PRELIMINARY RULING  
6.7 Mexico requests the Panel to amend paragraph 7.15  of the interim report, in order to clarify 
that the Panel's findings, conclusions and recommendati ons in the report only relate to Mexico's rights 
and obligations under the WTO Agreements, and not to Mexico's rights and obligations under other 
international agreements or other obligations under international law.   Mexico also requests the Panel 
to delete paragraph 7.16, since in its opinion its measures would be justified under the NAFTA if the 
dispute were to be submitted in its entirety to di spute settlement under the m echanism established by 
this agreement. 
6.8 The Panel has modified paragraph 7.15 of the interim report, as requested by Mexico, and 
modified paragraph 7.16 in order to clarify its meaning.  The Panel has also made other minor 
changes. 
E. COMMENTS ON PANEL 'S FINDINGS  
6.9 The parties request a number of modifications and minor corrections in the text of the report.  
Such requests have been duly considered and a dopted, where appropriate, by the Panel.  Some 
suggestions, however, have not been accepted as they would have improperly altered the substance of 
the findings, as noted below. 
6.10 The United States requests the deletion of para graphs 8.54, 8.115 and 8.153 of the interim 
report, since in its opinion they did not adequately reflect the United States arguments on the different treatment received by domestic a nd imported products as a result of the application of the soft drink 
tax, the distribution tax and the bookkeeping requirement s.  The Panel rejects the request to delete the 
paragraphs.  However, in the light of the United St ates request, the Panel clarified their language.  The 
Panel's reasoning is in fact based on the United States argument, supported by factual evidence, that most imports are being discriminated against. 
6.11 Mexico disagrees with the description made  by the Panel in paragraph 8.162, in fine , of the 
interim report.
185  Mexico considers that the paragraph wrongfully suggested that Mexico's position 
was that certain rules of international law were irre levant for the purpose of interpreting Article XX of 
                                                      
185 The interim report in Spanish, as issued to th e parties, erroneously iden tified this paragraph as 
8.180. WT/DS308/R 
Page 110  
 
 the GATT 1994.  Mexico states that the Panel could reso rt to rules of international law other than the 
WTO Agreements to evaluate whether its measure s were justified as measures necessary to secure 
compliance by the United States with the NAFTA.  Me xico further states that its position throughout 
the dispute was that such measures were justified under international law.  Mexico wishes to note 
these points for the record, but request s no specific action from the Panel. 
6.12 The United States requests the revision of paragr aphs 8.184 and 8.185 of the interim report.  
In its opinion, the Panel's analysis should focus on whether Mexico has met the burden of proof of its 
affirmative defence (which it has not, in the view of the United States) and not on what it means to 
enforce or to secure compliance.  The United States suggests that the Panel consider the contribution 
that the measures at issue have made to securing compliance on the part of the United States, rather 
than focus on whether the outcome of such measures is "certain" or "uncertain".  Mexico expressed its 
strong objection to the United States' request, and asked the Panel to reject it.  Although it expresses its disagreement with the Panel's conclusions, Mexico is of the view that paragraphs 8.184 to 8.187 of 
the interim report need to be maintained, being ge rmane to the Panel's finding that Mexico failed to 
demonstrate that the impugned measures were intende d to secure compliance with laws or regulations 
that are not inconsistent with the GATT 1994.  The Panel has retained the concerned paragraphs, 
although it has introduced changes in order to cl arify their meaning.  The Panel notes that its 
reasoning does not focus on whether the achievement of Mexico's objective through the measures at 
issue is certain or uncertain.  Rather, the Panel c onsiders that international countermeasures (as the 
ones allegedly imposed by Mexico) are intrinsically unable to secure  compliance of laws and 
regulations.  In contrast, national measures are, bey ond particular factual considerations, usually in a 
position to achieve to achieve that objective, through the use of coercion, if necessary.  
6.13 The United States raises an additional argu ment in support of the Panel's finding in 
paragraphs 8.184 and 8.185 of th e interim report that Mexico's tax measures do not qualify under 
Article XX(d) of the GATT 1994, namely that the parties to the NAFTA (including Mexico) agreed 
on the mechanism necessary to resolve any dispute concerning compliance with that agreement.  The 
argument has not been raised in the course of the di spute, until the interim review stage.  Moreover, 
the United States has not requested considerati on of such an argument in the final report. 
6.14 The United States questions the use of the Appellate Body Report on US – Gambling  in 
support of the Panel's conclusion that "the uncerta in outcome of international countermeasures is a 
reason for disqualifying them as measures eligible for considerati on under Art. XX(d)" in paragraphs 
8.186 and 8.187 of the interim report.  The Un ited States argues that the referred case was not 
considering the necessity of a measure "to secure comp liance with a law or regulation", but rather for 
the protection of public morals or the maintenance of public order.  The United States adds that the 
Appellate Body did not say that a measure with uncertain results could never qualify as a reasonably available alternative, but rather it concluded, on the basis of the facts presented in that case, that a 
process of negotiation about regulation of a service was not an alternative "capable of comparison" to 
a measure restricting the service.  The Panel agrees  with the United States on the different context of 
the US – Gambling  findings and those of the present case, but it considers that the reference is worthy 
of being kept as confirmation of the view that the uncertain outcome of international countermeasures 
is a reason for disqualifying them as measures eligible for considera tion under Article XX(d). 
6.15 With relation to paragraph 8.192 of the interim report, the United States requests the Panel to 
consider some of its arguments related to the mean ing of the word "law", su ch as a definition of the 
term "laws" previously recalled in its submissions, the importance of the use of the word "laws" in 
plural in Article XX(d) of the GATT 1994 and the diffe rent translation into French and Spanish of the 
word "law", as used in Article XX(d) and in Artic le 3.2 of the DSU.  Mexico did not oppose this 
request.  The Panel has included the appropriate re ferences to the definition presented by the United 
States and its other arguments related to the ordi nary meaning of the word "law", which were 
considered in the course of the proceedings.  WT/DS308/R 
 Page 111 
 
 
 6.16 Finally, the United States requests the deletion of  paragraph 8.234 of the interim report, which 
referred to Mexico's allegations that questioned wh ether the United States had acted in good faith in 
the course of the proceedings.  Mexico expressly states that it does not object to deleting such 
paragraph.  The Panel has accepted the request. 
VII. PRELIMINARY RULING 
A. INTRODUCTION  
7.1 On 18 January 2005, the Panel issued a prelimin ary ruling, rejecting Mexico's request for the 
Panel to decline to exercise its jurisdiction in th e case in favour of an Arbitral Panel under Chapter 
Twenty of the North American Free Trade Agreement (NAFTA).186  The Panel concluded that, under 
the DSU, it had no discretion to decide whether or not to exercise its jurisdiction in a case properly 
before it.  Furthermore, even if it had such discreti on, the Panel did not consider that there were facts 
on record that would justify the Panel declining to exercise its jurisdiction in the present case.  The 
Panel informed the parties that it would provide th em with a detailed reasoning for that ruling in its 
final report. 
7.2 In order to issue its preliminary ruling, the Pa nel considered Mexico's request as well as the 
arguments presented by the United States, the complaini ng party in the case, and by the third parties.  
Nothing in the DSU, or in the Panel's working procedures, required the Panel to address Mexico's 
request in a preliminary ruling.  Instead, the Pane l could have waited to ru le on the request until its 
final report.  It was the Panel's opinion, however, that both the parties and the panel proceeding were 
better served by an early ruling on the request.  Ha d it been appropriate for the Panel to decline to 
exercise its jurisdiction, an early decision to this effect would have saved time and resources.  On the 
other hand, if the Panel – as in the event it did – re jected Mexico's request, an early decision would 
allow the parties to concentrate on the other aspects of the dispute. 
7.3 In view of the above, the Panel issued a prelim inary ruling rejecting Mexico's request that it 
decline to exercise its jurisdiction in the case. 
B. THE PANEL 'S JURISDICTION TO HEAR THE PRESENT CASE  
7.4 Both parties agreed that the Panel had jurisdic tion to hear the United States' claims in the 
present case.187  The Panel's jurisdiction in this case was thus  not challenged by either of the parties.  
In light of the above, the Panel was satisfied that  it had proper jurisdiction in this case and therefore 
the authority to consider and make rulings and r ecommendations on the matters raised by the parties. 
C. MEXICO 'S REQUEST  
7.5 In considering Mexico's request, the Panel fi rst addressed whether it had the discretion to 
decline to exercise its jurisdiction to hear and decide a case properly brought before it. 
7.6 The Panel recalled that Article 11 of the DSU states that: 
"The function of panels is to assist th e DSB in discharging its responsibilities under 
this Understanding and the covered agreements.  Accord ingly, a panel should make 
an objective assessment of the matter before  it, including an objective assessment of 
                                                      
186 See Annex B to this Report. 
187 Mexico's first written submission, para. 93.  Mexico's response to Panel question No. 35.  United 
States' written version of oral statements during the fi rst substantive meeting of the parties with the Panel, 
para. 13.  United States' response to Panel question No. 2, para. 10. WT/DS308/R 
Page 112  
 
 the facts of the case and the applicability of and conformity with the relevant covered 
agreements, and make such other findi ngs as will assist the DSB in making the 
recommendations or in giving the rulings pr ovided for in the covered agreements..." 
7.7 In the context of Mexico's request, the term "discretion" would imply that the Panel has the 
power to decide whether or not to  act.  Indeed, discretion may be said to exist only if a legal body has 
the freedom to choose among several options, all of th em equally permissible in law.  It seems that 
such freedom for a panel would exist within the fra mework of the DSU only if a complainant did not 
have a legal right to have a pane l decide a case properly before it. 
7.8 As the Appellate Body has stated, the aim of th e WTO dispute settlement system is to resolve 
the matter at issue in particular cases a nd to secure a positive solution to disputes.
188  A panel has thus 
to address the claims on which a finding is necessary to enable the DSB to ma ke sufficiently precise 
recommendations or rulings to the parties.  A pane l would seem therefore not to be in a position to 
choose freely whether or not to exercise its jurisdic tion.  Were a panel to choose not to exercise its 
jurisdiction in a particular case, it would be failing to perform its duties.  More specifically, the panel 
would be failing to perform its duty to make "a n objective assessment of the matter before it, 
including an objective assessment of the facts of th e case and the applicability of and conformity with 
the relevant covered agreements, and to make such  other findings as will assist the DSB in making the 
recommendations or in giving the rulings pr ovided for in the covered agreements...". 
7.9 Moreover, the Panel recalled that, under Articl es 3.2 and 19.2 of the DSU, a panel may not 
add to or diminish the rights and obligations of  WTO Members provided in the covered agreements.  
If a WTO panel were to decide not to exercise its jurisdiction in a particular case, it would diminish 
the rights of the complaining Member under the DS U and other WTO covered agreements.  In this 
regard, the Panel also recalled Article 23 of th e DSU, which provides that Members of the WTO 
"shall" have recourse to, and abide by, the rules and procedures of the DSU when they seek the 
redress of a violation of obligations or other nullif ication or impairment of benefits under the WTO 
covered agreements.  In the Panel's view, the terms of Article 23 of the DSU make it clear that a WTO 
Member that considers that any of its WTO benefits  have been nullified or impaired as a result of a 
measure adopted by another Member has the right to bring the case before the WTO dispute settlement system. 
7.10 That being said, the Panel would point out that it makes no findings about whether there may 
be other cases where a panel's jurisdiction might be  legally constrained, not withstanding its approved 
terms of reference.  In any event, such a situation would be distinguishable from the case before this 
Panel, where Mexico argued that the Panel legally had the discretion not to exercise its jurisdiction and 
requested the Panel to apply such discretion. 
7.11 Mexico has argued that the United States' claims  are linked to a broader dispute between the 
two countries related to trade in sweete ners under a regional treaty, the NAFTA.
189  I n  M e x i c o ' s  
opinion, under those circumstances, it would not be appropriate for the Panel to issue findings on the 
merits of the United States' claims.190  In this regard, Mexico emphasized that its request to the Panel 
was not so much that the Panel decline to exercise its  jurisdiction, but rather that it decline to exercise 
it "in favour of a NAFTA Chapter Twenty Arbitral Panel".  In Mexico's opinion, only such a panel 
under the NAFTA would be in a position to "address the dispute as a whole".191 
                                                      
188 Appellate Body Report on Australia – Salmon , para. 223. 
189 Mexico's first written submission, paras. 88-92. 
190 Ibid., paras. 102-103. 
191 Ibid., para. 13.  WT/DS308/R 
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 7.12 According to the information supplied by Mexi co, there is a differing interpretation between 
Mexico and the United States regarding the c onditions provided under the NAFTA for access of 
Mexican sugar to the United States' market.192  The United States has acknowledged that there is such 
a difference which has resulted in a dispute unde r the NAFTA that "is presently in the panelist 
selection stage".193 
7.13 However, Mexico did not argue, nor is there any evidence on record to indicate, that there are 
legal obligations under the NAFTA or any other international agr eement to which Mexico and the 
United States are both parties, whic h might raise legal impediments to th e Panel hearing this case or to 
the United States bringing its complaint to the WTO.  Indeed, when specifically questioned on this point 
by the Panel, Mexico responded that there was not hing in the NAFTA that would prevent the United 
States from bringing the present case to  the WTO dispute settlement system.194  Mexico further added 
that it did not challenge the United States' right to  bring its complaint to the WTO dispute settlement 
system nor to request the establishment of the Panel.195 
7.14 Moreover, neither the subject matter nor the resp ective positions of the parties are identical in 
the dispute under the NAFTA which ha s been mentioned by Mexico and the dispute before us.  In the 
present case, the complaining party is the United States and the measures in dispute are allegedly 
imposed by Mexico.  In the NAFTA case, the situa tion appears to be the reverse:  the complaining 
party is Mexico and the measures in dispute are a llegedly imposed by the United States.  As for the 
subject matter of the claims, in the present case th e United States is alleging discriminatory treatment 
against its products resulting from internal taxes and other internal measures imposed by Mexico.  In 
the NAFTA case, instead, Mexico is arguing that th e United States is violating its market access 
commitments under the NAFTA. 
7.15 The Panel was mindful that, under Article 3.10 of the DSU, Members should not link 
"complaints and counter-complaints in regard to dis tinct matters".  In other words, even conceding 
that there seems to be an unresolved disput e between Mexico and the United States under the 
NAFTA, the resolution of the present WTO case cannot be linked to the NAFTA dispute.  In turn, any 
findings made by this Panel, as well as its conc lusions and recommendations in the present case, only 
relate to Mexico's rights and obligations under the WTO covered agreements, and not to its rights and 
obligations under other internationa l agreements, such as the NAFTA, or  other rules of international 
law. 
7.16 The Panel additionally noted that Mexico h as not argued that its challenged tax measures 
have been mandated or authorized under the rules of the NAFTA.196 
7.17 Even assuming, for the sake of argument, th at a panel might be entitled in some 
circumstances to find that a dispute would more appr opriately be pursued before another tribunal, this 
Panel believes that the factors to be taken into account  should be those that relate to the particular 
dispute.  We understand Mexico's argument to be th at the United States' clai ms in the present case 
should be pursued under the NAFTA, not because that  would lead to a better treatment of this 
particular claim, but because it would allow Mexico to pursue another, albeit related, claim against the 
United States.  The Panel fears that if such a matte r were to be considered then there would be no 
                                                      
192 Ibid., paras. 5, 27-77. 
193 United States' response to Panel question No. 7, para. 20. 
194 Mexico's response to Panel question No. 4. 
195 Mexico's response to Panel question No. 34. 
196 However, Mexico has argued that under th e NAFTA the examination of the challenged tax 
measures could be linked to its complaint regarding the United States' market access commitments for Mexican 
sugar.  See, Mexico's second written submission, para. 6.  See also, Mexico's response to Panel question No. 58.  
But see, United States' response to Panel question No. 58, paras. 22-24. WT/DS308/R 
Page 114  
 
 practical limit to the factors which could legitimately be taken into account, and the decision to 
exercise jurisdiction would become political rather than legal in nature. 
D. R
ULING BY THE PANEL  
7.18 For the reasons indicated above, the Panel decided to reject Mexico's request for the Panel to 
decline to exercise its jurisdiction in the case in favour of an Arbitral Panel under Chapter Twenty of 
the North American Free Trade Agreement (NAFTA).   The Panel concluded that, under the DSU, it 
has no discretion to decide whether or not to exer cise its jurisdiction in a case properly before it.  
Furthermore, even if it had such discretion, the Pa nel did not consider that there were facts on the 
record that would justify the Panel declining to  exercise its jurisdiction in the present case. 
VIII.  FINDINGS 
A. CLAIMS AND ORDER OF ANALYSIS  
1. Claims regarding soft drinks and claims regarding sweeteners 
8.1 The United States' claims concern three measur es adopted by Mexico, namely:  a "soft drink 
tax", a "distribution tax" and a number of "bookk eeping requirements".  The "soft drink tax" is a 20 
per cent ad valorem  tax on the transfer or, as applicable, th e importation of certain soft drinks and 
syrups.  The "distribution tax" is a 20 per cent ta x on the provision of specific services (commission, 
mediation, agency, representation, brokerage, cons ignment and distribution), when these services are 
provided for transferring certain soft drinks and sy rups.  Finally, the "bookkeeping requirements" are 
a number of requirements imposed on taxpayers subject to the "soft drink tax" and to the "distribution 
tax". 
8.2 The United States has submitted claims regarding the treatment that Mexico accords both to 
imports of soft drinks and syrups  and to imports of non-cane sugar sw eeteners, such as beet sugar and 
HFCS.  The United States emphasizes that although the measures at issue are imposed by Mexico on 
soft drinks and syrups, this is a dispute which fundamentally concerns the treatment accorded to 
sweeteners.197 
8.3 Mexico does not contest that this is mainly a di spute about the treatment of sweeteners, rather 
than about the treatment of soft drinks and sy rups.  Mexico agrees with the United States that, 
although the measures at issue are taxes that appl y to soft drinks and syrups, these measures were 
imposed to "stop the displacement of domestic can e sugar by imported HFCS and soft drinks and 
syrups sweetened with HFCS".  Mexico contends, however, that the dispute concerns, not just the 
treatment of imported sweeteners in  Mexico, but is part of a broader dispute with the United States 
concerning the bilateral trade in sweeteners under a regional trade agreement, the NAFTA.198 
8.4 Accordingly, the Panel will first examine the Un ited States' claims regarding the treatment of 
imported non-cane sugar sweeteners in Mexico and will then turn to its claims regarding the treatment 
of imported soft drinks and syrups. 
                                                      
197 United States' first written submission, para. 1. 
198 Mexico's first written submission, paras. 1-14 and 111.  Written version of Mexico's oral statement 
during second substantive meeting of the Panel with the parties, para. 36.  WT/DS308/R 
 Page 115 
 
 
 2. Claims under Articles III:2 and III:4 of th e GATT 1994, regarding the treatment of 
sweeteners 
8.5 With respect to the sweeteners, the United States  claims that that the soft drink tax and the 
distribution tax are inconsistent with both Artic les III:2 and III:4 of the GATT 1994, whereas the 
bookkeeping requirements are inconsiste nt with Article III:4 of the GATT 1994.199 
(a) Claims under Article III:2 of the GATT 1994 
8.6 The United States argues that both the soft drink tax and the distribution tax, as they are 
applied to beet sugar and to HFCS, are inconsis tent with the first sentence and with the second 
sentence of Article III:2 of the GATT 1994, respectively.200 
8.7 The United States contends that beet sugar a nd cane sugar are "like" products, but that only 
beet sugar when used as a sweetener for soft drinks and syrups is subject to the soft drink tax and the 
distribution tax.  According to the United States, th is results in imported beet  sugar being subject to 
taxes in excess of those applied to like domestic pr oducts, and that the taxes are therefore inconsistent 
with the first sentence of Article III:2 of the GATT 1994.201 
8.8 The United States also contends that HFCS and cane sugar are directly competitive or 
substitutable products and that the soft drink tax and the distribution tax result in imported HFCS 
being taxed dissimilarly compared to domestic cane sugar in a manner so as to afford protection to 
Mexican domestic production.  According to the United States, the soft drink tax and the distribution tax are therefore inconsistent with the sec ond sentence of Article III:2 of the GATT 1994.
202 
(b) Claims under Article III:4 of the GATT 1994 
8.9 The United States further argues that the soft  drink tax, the distribution tax and the 
bookkeeping requirements, as they are applied on HFCS and beet sugar, are inconsistent with 
Article III:4 of the GATT 1994. 
8.10 The United States says that, as sweeteners for soft drinks and syrups, beet sugar, HFCS and 
cane sugar are "like products" within the meaning of  Article III:4 of the GATT 1994.  It adds that the 
Special Tax on Production and Services ( Impuesto Especial sobre Producción y Servicios , or IEPS)203 
affects the use of beet sugar and HFCS, by cond itioning access to an advantage (the exemption from 
the tax) on use of a domestic sweetener (cane sugar) .  Producers of soft drinks and syrups who use 
imported beet sugar or HFCS to sweeten their pro ducts do not enjoy the same advantage.  The IEPS 
thus accords less favourable treatment to imports th an to like Mexican domestic products.  The United 
States concludes that the soft drink tax, the distribution tax and the bookkeeping requirements are inconsistent with Article III:4 of the GATT 1994.
204 
                                                      
199 United States' second written submission, paras. 10-13 
200 United States' second written submission, paras. 14, 15 and 18. 
201 United States' second written submission. paras. 18-22. 
202 United States' first written submission, paras. 93, 94 and 131-140. 
203 For the remainder of this Section, we will refer to the Mexican Special Tax on Production and 
Services as IEPS and to the Law that regulates such  tax (the Law on the Special Tax on Production and 
Services, Ley del Impuesto Especial sobre Producción y Servicios ) as LIEPS. 
204 United States' first written submission, paras. 22, 153-162.  United States' second written 
submission, paras. 12, 13 and 34-36. WT/DS308/R 
Page 116  
 
 (c) Simultaneous claims under Articles III:2 and III:4 of the GATT 1994 
8.11 As noted above, the United States presents claims in relation to sweeteners under both 
Articles III:2 and III:4 of the GATT 1994.  These clai ms have not been presented as alternatives.  
Rather, the United States argues that the IEPS as a tax on non-cane sugar sweeteners may be examined under both paragraphs.  In its view, th e IEPS is both an "internal tax" on non-cane sugar 
sweeteners for use in soft drinks an d syrups within the meaning of Ar ticle III:2 and a "law ... affecting 
the internal ... use" of non-cane sugar sw eeteners within the meaning of Article III:4.
205  The United 
States argues that Article III:2 prohibits dissimila r taxation of imported and domestic products, while 
Article III:4 prohibits less favourable treatment of imported products as compared to domestic 
products with respect to laws affecting their internal  sale, use, etc.  Thus, to the extent the less 
favourable treatment of the imported product takes th e form of dissimilar taxation that affects its 
internal sale and use, the measure at issue may constitute a breach of both Articles III:2 and III:4 of 
the GATT 1994.206 
8.12 The United States argues that, if there is overlap with respect to Articles III:2 and III:4 in this 
dispute, it is only "because of the particular ta x measures Mexico has chosen to employ to 
discriminate against [non-cane sugar sweeteners]".  In its opinion, "a discriminatory excise tax on a 
product, which also punishes users of that product for using imported inputs, would fit under both 
provisions".207 
8.13 Mexico responds that, under previous WTO juri sprudence, when a measure, such as in this 
case, is an internal tax or other internal charge, it should be assessed under Article III:2 of the GATT 
1994, and not under Article III:4.  Non-fiscal regula tions, on the other hand, would be covered by 
Article III:4.208 
(d) Panel's analysis of the simultaneous claims 
8.14 The Panel asked the parties whether a particular  order should be followed when dealing with 
the United States' claims under Articles III:2 and III:4 of the GATT.  As noted, in Mexico's opinion, 
WTO jurisprudence suggests that, if the challenge d measure constitutes a tax measure, it should be 
assessed under Article III:2 of the GATT 1994, whereas a non-fiscal regulation would be covered by 
Article III:4 of the GATT 1994.209  In turn, the United States does not express any strong preference 
on the order in which to analyse the claims.  Howe ver, it suggests that the Panel could employ the 
same order used by the United States in its submi ssions, i.e., first Article III:2 and then Article III:4.210 
8.15 Accordingly, the Panel will begin its analysis regarding the treatment accorded to sweeteners 
by Mexico under the challenged measures, by ex amining whether the soft drink tax and the 
distribution tax are internal taxes within the mean ing of Article III:2.  If the measures are internal 
taxes under Article III:2, the Panel will then cont inue its analysis on whether the measures are 
consistent with the requirements of Article III:2. 
                                                      
205 United States response to Panel question No. 11, para. 26. 
206 United States response to Panel question No. 21, para. 43. 
207 United States response to Panel question No. 55, para. 16. 
208 Mexico's response to Panel questions Nos. 11 and 55.  Written version of Mexico's oral statement 
during second substantive meeting of the Panel with the parties, paras. 53-54. 
209 Mexico's response to Panel questions Nos. 11 and 55. 
210 United States response to Panel question No. 55, para 17.  WT/DS308/R 
 Page 117 
 
 
 B. BURDEN OF PROOF  
1. General rule on burden of proof 
8.16 The general rule is that the burden of proof  rests upon the party, whether complaining or 
defending, who asserts the affirmative of a particular claim or defence.211  Following this principle, 
the Appellate Body has explained that the complaining party in any given case should establish a 
prima facie  case of inconsistency of a measure with a provision of the WTO covered agreements, 
before the burden of showing consistency with  a provision or defending it under an exceptional 
provision is taken on by the defending party.212  According to the Appellate Body, a prima facie case 
is "one which, in the absence of effective refu tation by the defending party, requires a panel, as a 
matter of law, to rule in favour of the complaining party presenting the prima facie  case."213 To 
establish a prima facie  case, the party asserting a particular cl aim must adduce evidence sufficient to 
raise a presumption that what is claimed is true.  In this regard, precisely how much and precisely 
what kind of evidence will be required to establish a presumption that a claim is valid will necessarily 
vary from case to case.214 
8.17 In this case, the initial burden of proof rest s upon the United States, as a complainant, to 
establish its prima facie  case that the measures at issue are incons istent with certain provisions of the 
WTO covered agreements.  The burden will then  be on Mexico to rebut such a claim. 
2. Burden of proof applied to the present case 
8.18 In assessing the parties' claims and arguments in  this case, the Panel notes that, other than to 
argue that the measure is not applied "so as to a fford protection", Mexico does not respond to the 
United States' claims on the alleged violations of  Article III of the GATT 1994.  However, Mexico 
does not concede to the United States' claims on the alleged violations of Article III, nor does it agree 
that its tax measures are in violation of Article III.  Mexico submits that its decision not to respond to 
the United States claims does not release the Unite d States from its obligation as a complainant to 
establish a prima facie  case, and that the Panel should make fi ndings only after an examination of 
whether the conditions required by the differe nt provisions of Article III have been met.215 
8.19 In this regard, the United States argues that it should not be an arduous task for the Panel to 
confirm that it has established a prima facie case of in consistency in this disp ute.  According to the 
United States, it has put forward more than am ple evidence and legal arguments in its two 
submissions, its oral statements and responses to the Panel's questions, and all the uncontested facts 
that have been presented by the United States s hould be accepted for purposes of the Panel's factual 
and legal findings in this dispute.  The United Stat es also draws the Panel's attention to the approach 
in US – Shrimp and Turkey – Textiles , where the panels undertook a brief analysis, based on the 
evidence before them, confirming that the complaining parties had made their prima facie  case and 
then proceeded to examine the respondents' affi rmative defence under Articles XX and XXIV of the 
GATT 1994, respectively when, as in this case, th e respondents did not make any rebuttals to the 
complainants' claims.216 
                                                      
211 Appellate Body Report on US – Shirts and Blouses , p. 14, DSR 1997:I, p. 323 at p. 335.  Panel 
Report on US – Shrimp , para. 7.14. 
212 Appellate Body Report on EC – Hormones , para. 104. 
213 Ibid. 
214 Appellate Body Report on US – Shirts and Blouses , p. 14, DSR 1997:I, p. 323 at p. 335. 
215 Mexico's response to Panel questions Nos. 9, 18 and 41. 
216 United States response to Panel question No. 9, pa ras. 22-23; and question No. 12, para. 27.  United 
States second written submission, para. 6.  Written vers ion of United States oral statement during second 
substantive meeting of the Panel with the parties, para. 3. WT/DS308/R 
Page 118  
 
 8.20 The assessment of the consistency of the m easures at issue with Article III entails an 
examination of factors such as like products, excess ive or dissimilar taxation between imported and 
domestic products, protection of domestic industry, and less favourable treatment afforded to 
imported products.  Therefore, to determine whethe r the United States has established its Article III 
claims, the Panel will need to examine the claims , arguments and evidence submitted by the parties 
for each legal requirement under the relevant provisi on of Article III while, at the same time, being 
mindful of the relatively succinct analyti cal approach adopted by the panels in US – Shrimp and 
Turkey – Textiles in the absence of any counter-arguments by the respondent. 
C. T
HE UNITED STATES ' CLAIMS REGARDING SWEETENERS UNDER THE FIRST SENTENCE OF 
ARTICLE  III:2  OF GATT  1994 
1. The United States' claims 
8.21 The United States claims that two of the challe nged tax measures, specifically the soft drink 
tax and the distribution tax, are inconsistent with the first sentence of Article III:2, because they are 
internal taxes imposed on imported beet sugar in  excess of the taxes applied to a like domestic 
product, in this instance, cane sugar. 
8.22 The United States argues that beet sugar and cane sugar are "like" products and that the 
incidence of the challenged taxes on the non-cane suga r sweeteners (in this case, beet sugar) for the 
production of soft drinks and syrups is much greater  than the nominal 20 per cent tax on the final soft 
drinks and syrups.  Such taxes, which are not applied to the like domestic product, would be inconsistent with the first sente nce of Article III:2 of the GATT 1994.
217 
2. Mexico's response 
8.23 Mexico does not respond to the Unite d States' claims in this regard.218 
3. Article III:2, first sentence, of the GATT 1994 
8.24 Under the first sentence of Article III:2 of the GATT 1994: 
"The products of the territory of any contr acting party imported into the territory of 
any other contracting party shall not be subject , directly or indirectly, to internal taxes 
or other internal charges of any kind in ex cess of those applied, di rectly or indirectly, 
to like domestic products." 
8.25 As articulated by the Appellate Body in its report in Canada – Periodicals , the analysis of 
whether a measure is inconsistent with the firs t sentence of Article III:2 of the GATT 1994 involves a 
two-step test: 
"[T]here are two questions which need to be answ ered to determine whether there is a violation 
of Article III:2 of the GATT 1994:  (a) whet her imported and domestic products are like 
products;  and (b) whether the im ported products are taxed in exce ss of the domestic products.  
If the answers to both questions are affirmative, there is a violation of Article III:2, first sentence."
219 
 
                                                      
217 United States' second written submission, paras. 18-22. 
218 Mexico's first written submission, para. 114.  Mexico's response to Panel question No. 9. 
219 Appellate Body Report on Canada – Periodicals , pp. 22-23, DSR 1997:I, p. 449, at p. 465-66.  WT/DS308/R 
 Page 119 
 
 
 4. Panel's analysis 
8.26 In order to examine this claim, and taking into account the fact that Mexico has chosen not to 
respond to the claims that the measures are inconsis tent with Article III, the Panel will consider the 
United States' legal arguments, as well as all the available evidence. 
(a) Likeness of products 
8.27 The United States argues that beet sugar a nd cane sugar are "like products" within the 
meaning of the first sentence of Article III:2 of the GATT 1994.  Indeed, the United States asserts that, although Article III:2 does not require that product s be identical to be considered alike, cane and 
beet sugar are virtually identical with respect to th eir physical properties and end-uses, are distributed 
in the same manner to consumers (in this case, pro ducers of soft drinks and syrups) that use them 
interchangeably and are both classified unde r heading 1701 of the Harmonized System.
220 
8.28 The consistent interpretation of dispute settlement bodies under the GATT 1947 and the WTO 
has been that the determination that products are "like" under Article III:2, first sentence, must be 
done "on a case-by-case basis, by examining relevant factors".221  These factors include "the product's 
end-uses in a given market; consumers' tastes and ha bits, which change from country to country; the 
product's properties, nature and quality."222 Another relevant factor iden tified by the Appellate Body 
is tariff classification, which, if sufficiently detailed,  "can be a helpful sign of product similarity", and 
has been used for this purpose in  several adopted panel reports.223  The Appellate Body has added that 
the definition of "like products" in Article III:2, first  sentence, must be construed narrowly.224 
8.29 In order to address the likeness requirement of th e first sentence of Article III:2, the Panel will 
therefore consider, on the basis of the evidence pr esented by the parties, the products' properties, 
nature and quality; their end-uses in a given mark et; consumers' tastes and habits; and the tariff 
classification of the products based on the Harmonized System.  It will construe the test of likeness in 
a narrow manner, as has been consistently done un der the first sentence of Article III:2 of the GATT 
1994.225 
(i) Products' properties, nature and quality 
8.30 Physically and chemically, beet sugar and cane sugar are forms of sucrose (a combination of 
glucose and fructose bonded together) with an iden tical molecular structure.  The main difference 
between these two forms of sugar is the source fro m which they are derived, sugar beets and sugar 
cane respectively.226 
8.31 Both beet sugar and cane sugar are sweeteners and, more precisely, nutritive sweeteners or 
sweeteners with a caloric content (as opposed to non-nutritive or non-caloric sweeteners, such as 
                                                      
220 United States' second written submission, para. 19. 
221 Appellate Body Report on Canada – Periodicals , p. 21, DSR 1997:I, p. 449, at p. 466.  See also, 
Appellate Body Report on Japan – Alcoholic Beverages II , p. 20, DSR 1996:I, p. 97, at p. 113. 
222 GATT Report of the Working Party on Border Tax Adjustments , BISD 18S/97, para. 18, as quoted 
in Appellate Body Report on Japan – Alcoholic Beverages II , p. 20, DSR 1996:I, p. 97, at p. 113. 
223 Appellate Body Report on Japan – Alcoholic Beverages II , pp. 21-22, DSR 1996:1, p. 97, at p. 114. 
224 Ibid., pp. 19-21, DSR 1996:1, p. 97, at 112-114. 
225 Appellate Body Report on Canada – Periodicals , p. 21, DSR 1997:I, p. 449, at p. 468.  See also, 
Appellate Body Report on Japan – Alcoholic Beverages II , pp. 19-21, DSR 1996:1, p. 97, at pp. 112-114. 
226 United States' first written submission, para. 22.  United States' second written submission, para. 19. WT/DS308/R 
Page 120  
 
 saccharine).  As such, both may be used as a sw eetener in the industrial production of various 
products, including the soft drinks and syr ups that are involved in the present dispute.
227 
(ii) Products' end-uses 
8.32 For the particular end-use that is relevant in this case, the production of soft drinks and 
syrups, there is no difference between beet sugar and cane sugar.  Producers can use beet sugar or 
cane sugar, or any combination of the two, when preparing soft drinks and syrups.228 
8.33 Being virtually identical in their physical properties and end-uses, beet sugar and cane sugar 
can be distributed in the same manner, and industr ial consumers (in this case, the producers of soft 
drinks and syrups) can use them interchangeably.  In so far as a choice is made between them it will 
be based on availability and price.229 
(iii) Consumers' tastes and habits 
8.34 With regard to consumers' pe rceptions and behaviour in respect of the products, the Panel 
notices that both beet sugar and cane sugar are almost  identical "sugars".  There does not seem to be a 
conspicuous difference in taste between the two products.230  Furthermore, for the particular end-use 
that is relevant in this case, i.e. the production of  soft drinks and syrups, any difference in taste 
between beet sugar and cane sugar is even less no ticeable.  Consumers of soft drinks and syrups 
would not be aware that one type of sugar has been u sed, rather than the other, since the use of one or 
the other does not alter the taste of the product, nor is it normally indicated on the labelling of the soft 
drink or syrup.  The United States has quoted a majo r soft drink producer who states that "[b]ecause 
there is no noticeable taste difference, bottlers have the option of using either high fructose corn syrup 
(HFCS), beet sugar or cane sugar, depending on availability and cost."231 
(iv) Tariff classification of the products 
8.35 Beet sugar and cane sugar are both classified under Harmonized System heading 1701.232 
(v) Conclusion 
8.36 Having considered the above factors, the Panel concludes that beet s ugar and cane sugar are 
"like products" within the meaning of the firs t sentence of Article III:2, as sweeteners in the 
production of soft drinks and syrups. 
                                                      
227 United States' first written submission, paras. 8 and 29.  United States' second written submission, 
para. 19. 
228 United States' first written submission, para. 77.  United States' second written submission, 
paras. 19, 27-29.  See also United States' responses to Panel question No. 74, para 68.  Exhibit US-40 (a), 
paras. 412, 415, 416, and 425 (original in Spanish). 
229 United States' first written submission, para. 109.  United States' second written submission, 
paras. 19, 27-29.  European Communities' third part y written submission, para. 25.  Exhibit US-40 (a), 
paras. 367 and 407 (original in Spanish). 
230 Exhibit US-40 (a), paras. 355 and 391 (original in Spanish). 
231 United States' first written submission, para. 77.  United States' second written submission, 
paras. 19, 27-29.  See also United States' response to Panel question No. 74, para 68. 
232 United States' second written submission, para. 19.  See also United States' response to Panel 
question No. 74, para. 68.  WT/DS308/R 
 Page 121 
 
 
 (b) Taxed in excess 
8.37 Having determined that beet sugar and cane suga r are "like products" within the meaning of 
the first sentence of Article III:2 of the GATT 1994, the Panel will now examine whether, through the 
soft drink tax and the distribution tax, Mexico is s ubjecting, directly or indirectly, imported products 
to internal taxes in excess of those applied, di rectly or indirectly, to like domestic products. 
8.38 The United States argues that, by imposing a tax on soft drinks and syrups because they are 
sweetened with sweeteners other than cane sugar, Mexico has also imposed a tax on the sweeteners 
themselves.  It further argues that, while the tax rate on the soft drinks and syrups is 20 per cent 
ad valorem , the effective rate of the tax, when calcula ted on the value of the sweeteners in the soft 
drinks and syrups, far exceeds that figure.  This is because the value of the sweeteners is only a 
fraction of that of the soft drinks or syrups of wh ich they form part.  Acco rding to the United States, 
the soft drink tax and the distribution tax result in an  effective tax rate of nearly 400 per cent on beet 
sugar, which is clearly a tax "in excess" of that applied to the like domestic product for the purposes 
of the first sentence of Article III:2.233 
8.39 The Panel will focus its analysis on two questions :  (i) whether beet sugar contained in soft 
drinks and syrups is "subject, directly or indirectly,"  to the soft drink tax and the distribution tax; and, 
(ii) whether the soft drink tax and the distribution tax subject imported beet sugar to internal taxes "in excess of" those applied to domestic cane sugar. 
(i) Is beet sugar subject, directly or indirectly, to  the soft drink tax and the distribution tax? 
8.40 Article III:2 of the GATT 1994 does not cover all in ternal taxes and internal charges, but only 
those internal taxes or internal charges that are "applied" by Members, directly or indirectly, to 
products.  The Article also refers in its first sen tence to products that are "subject, directly or 
indirectly, to internal taxes or other internal ch arges".  In the context of the present case, the two 
expressions (that "a tax be applied on a product" and that "a product be  subject to a tax") can be taken 
to have a common meaning that involves the existe nce of a link between the relevant tax and the 
taxed product. 
8.41 Although they are contained in the same legisla tive instrument (the LIEPS), the soft drink tax 
and the distribution tax are distinct measures that operate in different ways.  The United States has 
asked the Panel to make findings on the consiste ncy of each of these measures (as well as of the 
bookkeeping requirements) with Mexi co's obligations under the GATT 1994.
234  Accordingly, the 
Panel will consider separately whether beet sugar is s ubject to internal taxes in the form of the soft 
drink tax or the distribution tax, or both. 
Soft drink tax  
8.42 The first sentence of Article III:2 refers to inte rnal taxes or other inte rnal charges that are 
applied "directly or indirectly" to products.  It al so refers to products that are subject "directly or 
indirectly" to internal taxes or other internal ch arges of any kind.  The provision thus requires some 
connection, even if indirect, between the respective in ternal taxes or other internal charges, on the one 
hand, and the taxed product, on the other.  The qua lifying expression "directly or indirectly" does not 
eliminate the requirement for such a connection. 
                                                      
233 United States' second written submission, para. 20.  United States response to Panel question 
No. 15, para. 33, and question No. 74, paras. 71-73. 
234 United States response to Panel question No. 22, para. 48. WT/DS308/R 
Page 122  
 
 8.43 The soft drink tax is regulated by the Law on the Special Tax on Production and Services ( Ley 
del Impuesto Especial sobre Producción y Servicios , or LIEPS)
235 and its implementing legislation.  
The tax is triggered by the importation or the intern al transfer of soft drinks and syrups containing 
sweeteners other than cane sugar and it is charged on the importer or the purchaser as a percentage of the value of the soft drinks or syrups.
236  Because the tax is not proportional to the value of non-cane 
sweeteners in the drink or syrup, it might be argued that beet sugar is not subject directly  to the tax.  
However, because, as explained in the following paragraph, beet sugar is subject at least indirectly  to 
the tax, the point need not be decided here. 
8.44 In regard to the question of the indirect  imposition of the soft drink tax on sweeteners, it is 
significant that:  (a) it is the presence of non-cane sugar sweeteners that provides the trigger for the 
imposition of the tax; and, (b) the burden of the tax can be expected to fall, at least in part, on the 
products containing the sweetener, and thereby to fa ll on the sweetener.  The Appellate Body has said 
that "Article III protects expectations not of any particular trade volume but rather of the equal 
competitive relationship between imported and dom estic products".237  T a x e s  directly  imposed on 
finished products can indirectly  affect the conditions of competition between imported and like domestic 
inputs and therefore come within the sc ope of Article III: 2, first sentence.238  Indeed, in a previous case 
the word "indirectly" was considered to cover, inter alia , taxes that are imposed on inputs.239   
8.45 Given the facts just stated, the Panel concludes that the operation of the soft drink tax in 
regard to sweeteners is a factor influencing su ch competitive relationship and that such non-cane 
sugar sweeteners are therefore "subject … to" the tax, albeit that the relationship is indirect.  Consequently, non-cane sugar sweeteners are indirectly  subject to the soft drink tax when they are 
used for the production of soft drinks and syrups. 
Distribution tax
 
8.46 The distribution tax is also regulated by the LIEPS and its implementing legislation.240  
However, the degree of connection between the tax a nd the relevant products is more remote in the 
case of the distribution tax than in the case of the soft drink tax. 
8.47 The "distribution tax" is a tax on the provision of certain services when those services are 
provided "for the purpose of transferring" certain  products, including soft drinks and syrups.241  I n  
general, it is not evident that the distri bution tax is a tax imposed on products, even indirectly .  
According to some of the criteria used in a previ ous WTO case, there may be reasons to consider the 
distribution tax as a tax on services rather than on products.242  It is not triggered by the sales of the 
relevant products, but rather by the prov ision of services related to those products243; it is imposed at 
ad valorem  rates, not on the price of the relevant pr oducts, but rather on the value of the related 
                                                      
235 As noted, for the remainder of this Section, we  will refer to the Mexican Law on the Special Tax on 
Production and Services as LIEPS and to the tax itself (Special Tax on Production and Services, Impuesto 
Especial sobre Producción y Servicios ) as IEPS. 
236 Mexico's response to Panel question No. 48. 
237 Appellate Body Report on Japan – Alcoholic Beverages II , p. 16, DSR 1996:1, p. 97, at p. 110. 
238 Cf., Appellate Body Report on Canada – Periodicals , p. 19, DSR 1997:I, p. 449, at pp. 464-465. 
239 GATT Panel Report on Japan – Alcoholic Beverages I , para. 5.8.  See also, Panel Report on 
Canada – Periodicals , paras. 3.49 and 5.29. 
240 Mexico's response to Panel questions Nos. 81-82. 
241 LIEPS, article 2 (II.A).  Although the tax is also  imposed on the provision of services related to 
other products, such as alcoholic beverages, cigarettes and other tobacco products. 
242 Appellate Body Report on Canada –Periodicals , pp. 17-18, DSR 1997:1, p. 449, at pp. 463-464.  See 
also, Panel Report on Canada –Periodicals , paras. 5.28-5.29. 
243 LIEPS, artic le 2 (II.A).  WT/DS308/R 
 Page 123 
 
 
 services provided244; a special section of the LIEPS245, separate from the section governing taxes on 
products, is only applicable to this tax; and, the pe rson legally liable for the payment of the tax is the 
supplier of the service and not the producer of the relevant products (although the producers are 
obliged by law to retain the tax246). 
8.48 Until January 2002, the LIEPS imposed payment of the distribution tax on the provision of 
services related to all soft drinks and syrups, rega rdless of the sweetener used.  Since January 2002, 
and as a result of amendments introduced in the LIEPS, payment of the distribution tax has been 
exempted for the provision of services related to soft  drinks sweetened with cane sugar.  Pursuant to 
this amendment, the distribution tax is now imposed  on certain services relate d to one group of soft 
drinks and syrups, while the same services related to another group of soft drinks and syrups are 
exempted from the tax, based only on whether those soft drinks and syrups are sweetened with cane 
sugar or with non-cane sugar sweeteners. 
8.49 In the case of the soft drink tax, it was not ed that the imposition of the tax creates a 
connection such that non-cane sugar sweeteners, such  as beet sugar, can also be regarded to be 
indirectly  subject to such tax, because the tax is based solely on the nature of the sweetener used, and 
because the burden of the tax can be expected to fall, at least in part, on the products containing the 
sweetener, and thereby to fall on the sweetener.247  The imposition of the distribution tax creates a 
similar connection, considering again that it is base d solely on the nature of the sweetener used, and 
that the burden of the tax can be expected to fa ll, at least in part, on the products containing the 
sweetener, and thereby to fall on the sweetener.  T hus, while on its face the distribution tax is a tax 
directly  applied on the provision of certain services, in  the circumstances of this case, it is also an  tax 
indirectly  applied on non-cane sugar sweeteners when they are used for the production of soft drinks 
and syrups. 
8.50 In conclusion, the distribution tax is a tax indirectly  imposed on non-cane sugar sweeteners, 
such as beet sugar. 
(ii) Do the soft drink tax and the distribution tax s ubject imported sweeteners to internal taxes in 
excess of those applied to like domestic sweeteners? 
8.51 If the soft drink tax and the distribution tax are regarded as taxes indirectly  imposed on non-
cane sugar sweeteners248, the evidence supports the conclusion that  they subject beet sugar to internal 
taxes in excess of those applied to cane sugar.  I ndeed, the soft drink tax subjects the importation or 
the internal transfer of a certain group of soft dr inks, those sweetened with non-cane sugar sweeteners, 
to the payment of a 20 per cent ad valorem  tax.249  As for the distribution tax, assuming that the 
services provided have some value, the 20 per cent ad valorem  tax on those services will result in an 
additional tax on non-cane sugar sweeteners. 
8.52 The Appellate Body has said that even the sma llest amount of excess of the tax that imported 
products are subject to over the tax applied to like domestic products will satisfy the "in excess" 
criterion in Article III:2, first sentence.  It has al so made clear that the prohibition of discriminatory 
taxes in this provision is not conditional on a "trade effects test", nor qualified by a de minimis 
standard.250 
                                                      
244 Ibid., Articles 17 and 3(XII). 
245 Ibid., Chapter IV of the Law. 
246 Ibid., Article 5-A. 
247 See para. 8.44 above. 
248 See paras. 8.45 and 8.50 above. 
249 United States response to Panel question No. 74, paras. 72-75. 
250 Appellate Body Report on Japan – Alcoholic Beverages II , p.23, DSR 1996:1, p. 97, at p. 115. WT/DS308/R 
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 8.53 The United States contends that under the soft dr ink tax and the distribution tax the effective 
tax rate to which non-cane sugar sweeteners in soft  drinks and syrups are subject is as high as 400 per 
cent.
251  Mexico does not dispute this figure.  In any event, it is clear that, in ad valorem  terms, the 
indirect tax burden on beet sugar as an input r esulting from the 20 per cent tax on the value of the 
finished soft drinks or syrups and that resulting from the 20 per cent tax on the value of services 
associated with the soft drinks or syrups, based solely on the use of that non-cane sugar sweetener, 
would have to be compared with the correspondi ng burden on cane sugar, the like domestic product, 
which is zero per cent.  In each case, there can be no doubt that the one is "in excess" of the other. 
8.54 The United States contends that almost all im ported products are being taxed in excess of like 
domestic products as a result of the application of the soft drink tax and the distribution tax, and that 
the only sweetener exempted from the measures ( cane sugar ) is almost exclusively a domestic 
product.  As the following paragraphs explain, th e Panel finds that the facts of the case support this 
contention.  However, the Panel refrains from ruli ng on whether such a finding is necessary in order 
for the United States to establish its claim under Article III:2, first sentence, of the GATT 1994. 
8.55 As described above, the IEPS establishes a different  regime for two groups of soft drinks and 
syrups.  One group of soft drinks and syrups is subject, inter alia , to the payment of a soft drink tax 
and a distribution tax, while the other group is ex empted from these taxes.  The criterion established 
by the Mexican legislation for the division of soft drinks and syrups into these two groups is whether the soft drinks and syrups are sweetened with can e sugar or with non-cane su gar sweeteners, such as 
beet sugar. 
8.56 Mexico produces cane sugar for the use of the soft drink and syrup in dustry.  Most sugar 
consumed in Mexico is locally produced.
252  In the five years from 1997 to 2001, cane sugar 
represented less than 1 per cent each year of total Mexican imports of sweeteners.253  Unlike the 
United States, Mexico does not produce beet sugar.  Consequently, any soft drinks containing beet 
sugar would contain an imported sweetener. 
8.57 Although there is no record of imports of beet sugar into Mexico, not even incorporated in 
imported soft drinks, the soft drink tax and the di stribution tax alter the conditions of competition to 
the detriment of beet sugar, making it less likely that  there would be imports of beet sugar.  As the 
European Communities indicates in its third party submission, in some WTO Members beet sugar 
may be the sweetener of choice for the production of soft drinks and syrups.254 
8.58 The Panel therefore concludes that the situation wh ere beet sugar is liable to higher taxes than 
those applied to cane sugar is in effect  one where imported products are subject to taxes in excess of 
those applied to the like domestic products. 
5. Conclusion 
8.59 For the reasons stated above, the Panel conclud es that the soft drink tax and the distribution 
tax indirectly subject beet sugar imported into Mexico  to internal taxes in excess of those indirectly 
applied to like domestic pr oducts, and are in this respect inconsiste nt with Article III:2, first sentence, 
of the GATT 1994. 
                                                      
251 United States' second written submission, para. 20. 
252 Exhibit US-15. 
253 United States' first written submission, paras. 19, 20 , 23-26 and 56.  See also United States' response 
to Panel question No. 74, paras. 70 and 75.  Exhibit US-42. 
254 European Communities' third party written submission, para. 25.  WT/DS308/R 
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 D. THE UNITED STATES ' CLAIMS REGARDING SWEETENERS UNDE R THE SECOND SENTENCE OF 
ARTICLE III:2  OF GATT  1994 
1. The United States' claims 
8.60 The United States also requests the Panel to find that two of the challenged tax measures, the 
soft drink tax and the distribution tax, are incons istent with the second sentence of Article III:2, 
because directly competitive or substitutable pr oducts – HFCS and cane sugar – are not taxed 
similarly and protection is thereb y afforded to domestic production. 
8.61 The United States argues that HFCS and cane sugar are "directly competitive or substitutable" 
products when used as sweeteners for soft drinks a nd syrups.  The United States further contends that, 
as a result of the soft drink tax and the distributio n tax, HFCS and cane sugar are not being similarly 
taxed in Mexico.  According to the United Stat es, the incidence of the taxes on HFCS for the 
production of soft drinks and syrups is much great er than the 20 per cent tax that is imposed on the 
final soft drinks and syrups.  The United States clai ms that this dissimilar taxation is being applied by 
Mexico so as to afford protection to domestic pr oduction, inconsistently with the second sentence of 
GATT Article III:2.255 
2. Mexico's response 
8.62 Mexico's only response to the United States' claim under the second sentence of Article III:2, 
regarding the treatment of HFCS, is that its measu res are not intended to afford protection to its 
domestic production within the meaning of Article III of the GATT.256 
3. Article III:2, second sentence, of GATT 1994 
8.63 The second sentence of Article III:2 of the GATT 1994 says: 
"Moreover, no contracting party shall otherw ise apply internal taxes or other internal 
charges to imported or domestic products in  a manner contrary to the principles set 
forth in paragraph 1 [of Article III]." 
8.64 In turn, paragraph 1 of Article III of the GATT states: 
"The contracting parties recognize that intern al taxes and other internal charges, and 
laws, regulations and requirements affecting the internal sale, offering for sale, 
purchase, transportation, distribution or use of products, and internal quantitative 
regulations requiring the mixture, processing or use of products in specified amounts or proportions, should not be applied to im ported or domestic produc ts so as to afford 
protection to domestic production. " (Emphasis added). 
8.65 Finally, the Ad Note to Article III:2 of the GATT provides: 
"A tax conforming to the requirements of th e first sentence of paragraph 2 would be 
considered to be inconsistent with the provisions of the second sentence only in cases 
where competition was involved between, on the one hand, the taxed product and, on 
                                                     
 
255 United States' first written submission, paras. 93 -140.  United States' second written submission, 
paras. 14-16. 
256 Mexico's first written submission,  section III.D.  Mexico's response to Panel question No. 83.  
Written version of Mexico's oral statement during second  substantive meeting of th e Panel with the parties, 
para. 18. WT/DS308/R 
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 the other hand, a directly competitive or substitutabl e product which was not similarly 
taxed. " (Emphasis added). 
4. Panel's analysis 
8.66 There are three elements to be considered to de termine whether a measure is inconsistent with 
Article III:2, second sentence:  first, whether th e imported products and the domestic products are 
"directly competitive or substitutable products" wh ich are in competition with each other; second, 
whether the directly competitive or substitutable im ported and domestic products are "not similarly 
taxed;" and third, whether the dissimilar taxation of  the directly competitive or substitutable imported 
and domestic products is "applied ... so as to afford protection to domestic production."
257 
(a) Directly competitive or substitutable products 
8.67 Ad Note to paragraph 2 of Article III makes it clear that to fall within the scope of 
paragraph 2, second sentence, it is sufficient that the relevant products be "directly competitive or 
substitutable". 
8.68 The Appellate Body has said that products are "d irectly competitive or substitutable" if they 
are interchangeable or if they offer "alternative ways of satisfying a particular need or taste".258  The 
phrase connotes a relationship between imported a nd domestic products at issue that can be 
essentially described as "in competition" in the marketplace.259  In order to make this assessment, 
GATT and WTO bodies have examined the following f actors:  the competitive conditions between 
the products in the relevant market, in the light  of the nature of both products, their physical 
characteristics, their common end-uses, consumers'  perceptions and behaviour in respect of the 
products, and the products' tariff classifications.260  The Panel will examine these factors in respect of 
HFCS and cane sugar. 
(i) Products' properties, nature and quality 
8.69 Both HFCS and cane sugar are sweeteners a nd, more precisely, nutritive sweeteners or 
sweeteners with a caloric content (as opposed to non-nutritive or non-caloric sweeteners, such as 
saccharine).261  As such, both may be used, during an in dustrial process, for the purpose of sweetening 
products such as the soft drinks and syrups  that are involved in the present dispute. 
8.70 Physically, although not identical, HFCS and cane sugar have similar characteristics.  They 
are both combinations of glucose and fructose, albe it in different proportions.  In the case of HFCS, 
the precise proportions of glucose and fructose depe nd on the grade of the HFCS.  The United States 
has provided evidence regarding the existence of three types of HFCS:  HFCS-42, HFCS-55 and 
HFCS-90.  The number stands for the percentage of fructose in the product.  HFCS-42 and HFCS-55 
are the grades most commonly used in the produc tion of soft drinks and syrups.  In these two 
formulations, the proportions of glucose and fructose in  HFCS are similar to those in cane sugar.  This 
similarity is deliberate, since HFCS is designed to  mimic sugar as far as possible, so that it can be 
used as an alternative industrial sweetener.  HFCS-9 0 may also be used as a sweetener for soft drinks 
and syrups if it is blended with HFCS-42 to produ ce HFCS-55.  While HFCS is always liquid, sugar 
can also be consumed in liquid form, particularly  for industrial uses such as the production of soft 
                                                      
257 Appellate Body Report on Japan – Alcoholic Beverages II , p.24, DSR 1996:1, p. 97, at p. 116. 
258 Appellate Body Report on Korea – Alcoholic Beverages , para. 115.  
259 Ibid., para. 114. 
260 See, for example, Appellate Body Report on Japan – Alcoholic Beverages II , p. 25, DSR 1996:1, 
p. 97, at p. 117. 
261 United States' first written submission, para. 29.  WT/DS308/R 
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 drinks and syrups.  Indeed, as part of the process of producing soft drinks and syrups, cane sugar is 
mixed with water to produce a sugar syrup, which is  then added to other ingredients to produce the 
soft drink or syrup.262 
(ii) Products' end-uses 
8.71 Cane sugar and HFCS may serve the same end-use,  i.e., to be sweetene rs in the production of 
soft drinks and syrups.  Indeed, the evidence sugg ests that HFCS was developed mainly as a cost-
effective alternative to sugar for the production of so ft drinks.  Producers of soft drinks and syrups 
will decide whether to use cane sugar or HFCS – or, indeed, beet sugar – or any combination of those 
sweeteners, very largely on th e basis of their relative prices.263  Some producers may even use blends 
of sugar and HFCS.264 
(iii) Consumers' perceptions and behaviour 
8.72 Concerning consumers' perceptions, the Panel h as already noted that the sweeteners in the 
present case are an input used in the production of a fi nal product, i.e., soft drinks and syrups.  The 
immediate consumers of the sweeten ers are the industrial producers of soft drinks and syrups.  The 
evidence suggests that these producers consider  HFCS and cane sugar to be completely 
interchangeable and will substitute HFCS for cane s ugar, if that reduces costs.  According to the 
United States Department of Agriculture, "HFC S deliveries have shown strong growth from the 
period when first introduced in the 1970s up to th e late 1990s.  In the period up to 1986, HFCS 
growth came at the expense of corresponding redu ctions in sugar deliveries.  After 1986, strong 
demand for carbonated soft drinks helped promote strong demand for HFCS.  Since 1999, soft drink 
consumption growth has fallen and with it, the demand for HFCS."265 
8.73 In the particular case of Mexico, the evidence indicates that, as HFCS became available, and 
before the tax measures were imposed, Mexican producers of soft drinks and syrups started 
substituting it for cane sugar.  The United States Depa rtment of Agriculture estimated that "prior to 
the imposition of the tax in January 2002, Mexico's soft drink industry was using 450,000-480,000 mt 
of HFCS, or between 75 and 80 percent of tota l HFCS consumption of 600,000 mt, dry basis".266  
When the Mexican Government imposed measures on HFCS (such as anti-dumping duties and the tax 
measures challenged under the present case), the produ cers switched back to cane sugar.  The United 
States has also pointed to the fact that industrial producers of fruit and vegetable juices, which are not 
subject to the IEPS, have continued using HFCS.  All this evidence indicates that industrial consumers 
of sweeteners regard cane sugar and HFCS as interc hangeable products for producing soft drinks and 
syrups.267 
8.74 As for final consumers, the evidence indicates that  the consumers of soft drinks and syrups do 
not differentiate between products  sweetened with cane sugar and those sweetened with HFCS.  
HFCS and cane sugar are similar in terms of sm ell and colour:  both are odourless and, when 
presented as liquids, colourless.  The taste, colour an d other physical characteristics of soft drinks and 
syrups sweetened with HFCS and cane sugar are indistinguishable.268  Furthermore, Mexican labelling 
                                                      
262 United States' first written submission, paras. 96-102 and 107.  United States response to Panel 
question No. 72, paras. 56-60.  Exhibits US-22 and US-40 (a ), paras. 339 to 426 (especially paras. 350 to 355, 
original in Spanish). 
263 Exhibit US-40 (a), para. 355 (original in Spanish). 
264 United States' first written submission, paras. 106-113.  Exhibit US-27. 
265 United States Department of Agriculture, "Sugar and Sweeteners Outlook" (May 27, 2004), Exhibit 
US-21, p. 19. 
266 Ibid., p. 23. 
267 United States' first written submission, paras. 14 , 34, and 106-113.  Exhibits US-26 and US-27. 
268 Exhibit US-22. WT/DS308/R 
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 regulations do not make a distinction between th e different sweeteners, so a bottler can switch 
between different mixtures of HFCS and cane suga r without changing the labelling, and the consumer 
will not be aware which of them is being used.
269  The Panel may therefore conclude that, as between 
HFCS and cane sugar, the specific caloric sweetener used is not a factor that Mexican consumers take 
into account when choosing a soft drink or syrup.270 
(iv) Tariff classification of the products 
8.75 Both cane sugar and HFCS are described as "suga rs" in the Harmonized System.  Cane sugar 
occupies heading 1701 of the Harmonized System, wh ile HFCS is classified within heading 1702, 
together with liquid sugar and inve rt sugar, as part of the group "other sugars".  Both products are 
therefore part of Harmonized System Chap ter 17, "Sugars and sugar confectionery".271 
(v) Determination by other authorities 
8.76 The determination that HFCS and cane sugar may be regarded as "directly competitive or 
substitutable products" for producing soft drinks and syrups is s upported by a similar conclusion 
reached by other bodies.  In a press bulletin issu ed in 2003, the Mexican Ministry of Economics 
announced, in response to requests from industrial cons umers of sugar in Mexico, the approval of an 
import quota of refined sugar as a "preventive me asure", in case domestic production was insufficient 
to satisfy domestic demand.  The bulletin goes on to state that the concerns of the industrial 
consumers of sugar were "mainly the consequence of the entry in to force of the Special Tax on 
Production and Services (IEPS) for soft drinks elaborated with fructose, which generated a 
replacement of fructose with sugar in the sweetene rs market of approximately 500 thousand tonnes..." 
(Dichas preocupaciones son consecuencia fundamenta lmente de la entrada en vigor del Impuesto 
Especial sobre Producción y Servicios (IEPS) para refrescos elaborados con fructuosa y que generó 
una sustitución de fructuosa por azúcar en el Mercado de edulcorantes de  aproximadamente 500 mil 
toneladas ).272 
8.77 A decision by the Mexican Federal Compe tition Commission in June 1999 similarly 
concluded that "Refined sugar is used mainly in the producti on of bottled refreshments, while 
standard sugar is used in various branches of the f ood industry.  High fructose corn syrup (HFCS) is a 
substitute mainly for refined sugar" ( El azúcar refinada se utiliza prin cipalmente en la producción de 
refrescos embotellados, mientras que el azúcar  estándar es empleada en diversas ramas de la 
industria alimentaria.  El jarabe de maíz de a lta fructuosa (jmaf) es sustituto principalmente del 
azúcar refinada. ). 273  An earlier report of the same Mexican Federal Competition Commission had 
defined HFCS as a "close substitute for refined sugar in processing soft drinks" ( un sustituto cercano 
del azúcar refinada en la el aboración de bebidas gaseosas ).274 
(vi) Conclusion 
8.78 For the reasons indicated above, the Panel conc ludes that HFCS and cane sugar are "directly 
competitive or substitutable products" for producing so ft drinks and syrups, within the meaning of 
Article III:2, second sentence. 
                                                      
269 Exhibit US-37 (a), table 1 (original in Spanish). 
270 United States' first written submission, paras. 99, 100 and 111.  Exhibit US-40 (a), para. 391 
(original in Spanish). 
271 United States' first written submission, para. 117. 
272 Exhibit US-53 (original in Spanish). 
273 Exhibit US-56 (original in Spanish). 
274 Exhibit US-55 (original in Spanish).  WT/DS308/R 
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 (b) Not similarly taxed 
8.79 For the Panel to conclude that an imported pr oduct is being "not similarly taxed" when 
compared to a directly competitive or substituta ble domestic product, within the meaning of the 
second sentence of Article III:2 of the GATT 1994, it must determine that the tax burden on the 
imported product is heavier than on the domestic product, and that this difference is more than 
de minimis .275 
8.80 The Panel has already determined that the soft drink tax and the distribution tax are indirectly 
applied to non-cane sugar sweeteners.276 
8.81 The evidence indicates that, as a result of the application of the soft drink tax and the 
distribution tax, HFCS is being taxed dissimilarly co mpared to cane sugar.  Indeed, as has been noted, 
the soft drink tax subjects the importation and the inte rnal transfer of a certain group of soft drinks, 
those sweetened with non-cane sugar sweeteners, to the payment of a 20 per cent ad valorem  tax.  As 
for the distribution tax, assuming that the services provided have some value, the 20 per cent ad valorem  tax on those services will result in an additional tax indirectly  imposed on non-cane sugar 
sweeteners.  When considered as a tax on the input, in ad valorem  terms the actual tax burden that the 
soft drink tax and the distribution tax impose on no n-cane sugar sweeteners (in particular, on HFCS), 
is higher than the rate of 20 per cent tax imposed on the finished product.  Indeed, the actual tax 
burden on the input would be relative to the proporti on that the value of the input represents of the 
price of the finished product and the value of the services provided. 
8.82 The United States contends that under the soft dr ink tax and the distribution tax the effective 
tax rate to which non-cane sugar sweeteners in soft  drinks and syrups are subject is as high as 400 per 
cent.
277  Mexico does not dispute this figure.  In any ev ent, it is clear that the burden on sweeteners 
resulting from the 20 per cent tax on the value of the fi nished soft drinks or syrups and that resulting 
from the 20 per cent tax on the value of services associat ed with the soft drinks or syrups, based solely 
on the use of non-cane sugar sweeteners, would have  to be compared with the corresponding burden 
on cane sugar, the like domestic product, which is zer o per cent.  The term "not similarly taxed" is 
taken to mean a difference in tax that is more than de minimis .278  The Panel is in no doubt that in each 
case the difference in taxation between soft drin ks or syrups sweetened with HFCS and those 
sweetened with cane sugar is more than de minimis .  Consequently, a product (HFCS) which is being 
taxed at considerably more than 20 per cent is not being "similarly ta xed" to one (cane sugar) which is 
subject to no tax. 
8.83 For these reasons, the Panel concludes that the difference in taxation between imported HFCS 
and domestic cane sugar, resulting from the application of the soft drink tax and the distribution tax, is 
more than de minimis  and the two products are therefore "not similarly taxed". 
(c) So as to afford protection to domestic production 
8.84 The last issue to be considered by the Panel in regard to Article III:2, second sentence, is 
whether the soft drink tax and the distribution tax are being applied "so as to afford protection" to 
Mexican domestic production.  The United States argues that, with respect to HFCS, the soft drink tax 
and the distribution tax afford protection to Mexican domestic production of cane sugar.279 
                                                      
275 Appellate Body Report on Japan – Alcoholic Beverages II , p. 27, DSR 1996:1, p. 97, at p. 119. 
276 See paras. 8.45 and 8.50 above. 
277 United States' second written submission, para. 20. 
278 Appellate Body Report on Japan – Alcoholic Beverages II , p. 27, DSR 1996:1, p. 97, at p. 119. 
279 United States response to Panel question No. 29, para. 68. WT/DS308/R 
Page 130  
 
 8.85 For a violation of Article III:2, second sentence,  it is not enough that imports and directly 
competitive or substitutable domestic products be dissi milarly taxed, the relevant tax must also be 
applied "so as to afford protection" to domestic production.  In that regard, as explained by the 
Appellate Body: 
"[W]e believe that an examination in any case of whether dissimilar taxation has been 
applied so as to afford protection requires a comprehensive and objective analysis of 
the structure and application of the measure  in question on domestic as compared to 
imported products.  We believe it is possible to examine objectively the underlying criteria used in a particular tax measure, its  structure, and its overall application to 
ascertain whether it is applied in a way that  affords protection to domestic products.  
Although it is true that the aim of a measure may not be easily ascertained, 
nevertheless its protective application can most often be discerned from the design, the architecture, and the revealing structure of a measure."
280 
8.86 The design and operation of the soft drink tax and the distribution tax indicate that they afford 
protection to Mexican production of cane sugar.  These taxes apply to the importation and internal 
transfers of all soft drinks and syrups, except for inte rnal transfers of soft drinks and syrups sweetened 
with cane sugar.  As the Panel has already dete rmined, this means that the challenged measures 
mostly affect imported sweeteners as opposed to domestic like products.281  Mexican production of 
sweeteners for soft drinks and syrups is concentr ated on cane sugar, whereas imports of sweeteners 
were overwhelmingly concentrated on HFCS (un til this trade ceased, coinciding with the imposition 
of the taxes). 
8.87 The magnitude of the tax differential between  imported and domestic products, resulting from 
the application of the soft drink tax and the distri bution tax, is additional evidence of the protective 
effect of the measure on Mexican domestic production of sugar.  As has been already noted, the 20 
per cent tax rate on the finished soft drinks and sy rups constitutes a tax on HFCS as an input that is 
considerably more than 20 per cent.282 
8.88 The finding that the tax measures have a protective effect is in line with the general character 
of the measures taken by Mexico in recent years in the sugar sector.283  Mexico has been able to 
maintain a relatively protected market for sugar.284  This has allowed Mexico  to maintain relatively 
high domestic prices for sugar, compared to intern ational prices.  According to the available data, 
most sugar consumed in Mexico is domestically produced, since Mexico imports very small quantities 
of sugar.  Indeed, annual Mexican imports of s ugar in the period 1995-2003, never exceeded 2.65 per 
cent of its domestic consumption and, in seven out of  the nine years that comprise this period, they 
were below 1 per cent of domestic consumption.285 
8.89 Mexico does not deny the importance it attributes to  the protection of its cane sugar industry.  
Although Mexico states that its tax measures were "not intended to afford protection to domestic 
production within the meaning of Article III of the GATT 1994"286, it acknowledges that the IEPS 
                                                      
280 Appellate Body Report on Japan – Alcoholic Beverages II , p. 29, DSR 1996:I, p. 97, at p. 120. 
281 See para.8.56, above. 
282 See para. 8.82 above. 
283 See, for example, Mexico's first written submissi on, para. 52.  See also, United States' first written 
submission, footnote 30.  United States' comments to Mexico's response to Panel question No. 90, para. 48.  
Exhibits US-59, US-61, US-62, US-63, US-64 and US-65. 
284 Cf. Appellate Body Report on Japan – Alcoholic Beverages II , p. 31, DSR 1996:I, p. 97, at p. 122.  
See also, Panel Report on Japan – Alcoholic Beverages II , para. 6.35. 
285 United States' first written submission, para. 20.  Exhibit US-42. 
286 Mexico's first written submission, section III.D.  Written version of Mexico's oral statement during 
second substantive meeting of the Panel with the parties, para. 18.  WT/DS308/R 
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 was one of a number of measures adopted by th e Mexican authorities to alleviate the adverse 
economic situation experienced by its domestic suga r industry.  Indeed, it has expressed its agreement 
with the United States' observation that the ch allenged measures were imposed to "stop the 
displacement of domestic cane sugar by imported HFCS  and soft drinks and syrups sweetened with 
HFCS".287  Mexico claims, however, that its tax meas ures are not intended to afford protection to 
domestic production within the meaning of Article III of the GATT 1994, but were rather adopted as a 
response to the impairment of Mexico's ri ghts under the NAFTA regarding market access 
opportunities for its sugar exports to the United States' market.288 
8.90 In its various submissions in this case, Mexi co describes at length the economic and social 
importance of its sugar sector.  For example, it says that "in Mexico the cultivation of sugarcane is 
widespread and crucial to the rural economy.  It is  a vital cash crop for many relatively poor farmers 
in 15 of Mexico's 32 states.  There are some 155,00 0 cane growers in Mexico and it is estimated that 
nearly 3 million people in rural Mexico depend on the sugarcane crop."289  Mexico adds that:  
"Sugarcane is the leading and most important crop in  Mexico.  The cultivated field area is twice that 
of tomatoes, corn, carrots, and potatoes."290  According to its figures, 1.5 per cent of the Mexican 
workforce depends directly on its sugar industry.291  Sugar cane generates higher returns to the 
farmers than any other crop, in terms of production value per harvested hectare.292 
8.91 The protective effect of the measure on Mexican  domestic production of sugar does not seem 
to be an unintended effect, but rather an inten tional objective.  The Appellate Body has cautioned 
against ascribing too much importance to the subjectiv e legislative intent of legislators and regulators 
in the drafting of a particular measure, to determin e whether the measure is applied so as to afford 
protection to domestic production, particularly when th at declared intent is that protectionism was not 
an objective.293  However, the declared intention of legislators and regulators of the Member adopting 
the measure should not be totally disregarded, par ticularly when the explicit objective of the measure 
is that of affording protection to domestic productio n.  Indeed, the Appellate Body has confirmed that 
statements made by government representatives of a Member, admitting to the protective intent of a 
measure, may be relevant as part of a number of considerations in reaching the conclusion that a 
measure is applied so as to afford protection to domestic production.294 
8.92 In this respect, the United Stat es has presented a copy of the writte n record of the debate that 
took place in December 2001 in the Mexican Congress on the bill that proposed the amendments to the LIEPS that would put in place the measures at issue.  During that debate, a member of the 
Mexican Congress presented the bill on behalf of th e committee that had drafted it (the Committee of 
Treasury and Public Credit of the Chamber of Deputies ( Comisión de Hacienda y Crédito Público ).  
During his presentation, the representative of the co mmittee declared, after explaining to the chamber 
the taxes that would be imposed on soft drinks and syrups, "[w]e legislat ors, however, have the 
commitment to protect the national sugar industry,  because a great number of Mexicans' subsistence 
depends on it.  To that effect, it is proposed that the tax on soft drinks be applied only to those [soft 
drinks] that for their production u tilize fructose instead of cane sugar".
295 
8.93 In March 2002, the Mexican Executive exempted, inter alia , all imports and transfers of soft 
drinks and syrups (and not only those of soft drinks and syrups sweetened with cane sugar) from 
                                                      
287 Mexico's first written submission, para. 111.  United States' first written submission, para. 3. 
288 Mexico's response to Panel question No. 83. 
289 Mexico's first written submission, para. 4. 
290 Ibid., para. 16. 
291 Ibid., para. 17. 
292 Ibid., para. 20. 
293 Appellate Body Report on Japan – Alcoholic Beverages II , pp. 27-28, DSR 1996:I, p. 97, at pp. 119.  
294 Appellate Body Report on Canada – Periodicals , pp. 30-32, DSR 1997:1, p. 449, at pp. 475-476. 
295 Exhibit US-28, US-29 (original in Spanish) and US-34(a), page 90 (original in Spanish). WT/DS308/R 
Page 132  
 
 payment of the soft drink tax.  The Mexican Supr eme Court of Justice was asked by the Chamber of 
Deputies of the Mexican Congress to annul that ex emption on the grounds that the exemption was 
unconstitutional.  When considering the case, th e Supreme Court of Justice stated that: 
"[i]n order to resolve the alleged unconstituti onality of the challenged decree, that is, 
whether the law approved by the Congress of the Union is being duly executed, it is 
necessary to turn to the motives that prompted  the ordinary legislator to reform the 
Law on the Tax on Production and Services, in  order to extend the scope of subjects 
to that tax to those who use sweet eners different than cane sugar."
296 
8.94 The Mexican Supreme Court of Justice looked at the report of the Committee of Treasury and 
Public Credit of the Mexican Chamber of Deputies a nd at the statement made to the chamber by the 
representative of that committee to which we have  referred.  From those documents, the Court 
concluded that "the legislator's intent when exte nding the aforementioned tax to gasified waters, soft 
drinks, hydrating drinks and other taxed goods and activities, when they use fructose in their production rather than cane sugar, was that of pr otecting the sugar industry".  The Court concluded 
that the Executive had violated, not only the fiscal objective of the measure, but "also its extra-fiscal 
objective that was expressed in the legislative proce dure, that is the protection of the domestic sugar 
industry".
297  The exemption granted by the Me xican Executive was thus annulled. 
8.95 Having considered all these factors, the Panel concludes that the soft drink tax and the 
distribution tax are being applied so as to affo rd protection to Mexican domestic production of cane 
sugar. 
5. Conclusion 
8.96 For the reasons given above, the Panel concl udes that the dissimilar taxation imposed on 
directly competitive or substitutable imports (HFCS) and domestic products (can e sugar) is applied in 
a way that affords protection to domestic production, and that the tax measures are therefore inconsistent with Article III:2,  second sentence, of the GATT 1994. 
E. T
HE UNITED STATES ' CLAIMS REGARDING SWEETENERS UNDER ARTICLE III:4  OF GATT  1994 
1. The United States' claims 
8.97 The United States requests the Panel to find that  the challenged tax measures (the soft drink 
tax, the distribution tax and the bookkeeping requireme nts) are inconsistent with Article III:4 of the 
GATT 1994, because they are internal measures that affect the internal use and sale of imported non-
cane sugar sweeteners and accord those non-cane sugar sweeteners treatment that is less favourable 
than that accorded to like products of national origin, i.e. cane sugar. 
8.98 The United States claims that beet sugar, HFCS and cane sugar, as sweeteners for soft drinks 
and syrups, are "like products"; that the three ch allenged tax measures (the soft drink tax, the 
distribution tax and the bookkeeping requirements) affect the use of beet sugar and HFCS, by 
conditioning access to an advantage (the exempti on from the tax) on use of a domestic sweetener 
(cane sugar); that producers of soft drinks and syrups who use imported beet sugar or HFCS to 
sweeten their products do not enjoy the same advant age; and that the three measures therefore accord 
less favourable treatment to imports than to lik e Mexican domestic products.  The United States 
                                                      
296 Exhibit US-31 (original in Spanish). 
297 Ibid.  WT/DS308/R 
 Page 133 
 
 
 concludes that the soft drink tax, the distribution tax and the bookkeeping requirements are therefore 
inconsistent with Article III:4 of the GATT 1994.298 
2. Mexico's response 
8.99 Mexico does not respond to the Unite d States' claims in this regard.299 
3. Article III:4 of GATT 1994 
8.100  Under Article III:4 of the GATT 1994: 
"The products of the territory of any contr acting party imported into the territory of 
any other contracting party shall be accord ed treatment no less favourable than that 
accorded to like products of national origin  in respect of all laws, regulations and 
requirements affecting their internal sale, offering for sale, purchase, transportation, 
distribution or use.  The provisions of this  paragraph shall not prevent the application 
of differential internal transportation ch arges which are based exclusively on the 
economic operation of the means of tran sport and not on the nationality of the 
product." 
8.101  The Appellate Body has said that "[f]or a viola tion of Article III:4 to be established, three 
elements must be satisfied:  that the imported and domestic products at issue are 'like products';  that 
the measure at issue is a 'law, regulation, or require ment affecting their internal sale, offering for sale, 
purchase, transportation, distribution, or use'; a nd that the imported products are accorded 'less 
favourable' treatment than that acco rded to like domestic products".300 
4. Panel's analysis 
8.102  The Panel has already determined that the soft drink tax and the distribution tax, as applied on 
beet sugar and HFCS, are internal taxes incons istent with Article III:2 of the GATT 1994.  
Consequently, the Panel need not proceed any furthe r in respect of these two measures.  Nevertheless, 
the Panel will analyse the United States' claims ag ainst the soft drink tax and the distribution tax 
under Article III:4, in the event that either or bot h of the two measures should be considered more 
properly as measures affecting the internal use of  sweeteners, rather than as internal taxes on 
sweeteners. 
(a) Likeness of products 
8.103  The United States argues that, as sweeteners for th e production of soft drinks and syrups, beet 
sugar, HFCS and cane sugar are "like products" within  the meaning of Article III:4.  In its opinion, 
cane and beet sugar are not only "like", but are almost identical.  HFCS and cane sugar, on the other hand, are near perfect substitutes as swee teners in soft drinks and syrups.
301 
                                                      
298 United States' first written submission, paras. 15 5-162.  United States' second written submission, 
paras. 34-36. 
299 Mexico's first written submission, para. 114.  Mexico's response to Panel question No. 9. 
300 Appellate Body Report on Korea – Various Measures on Beef , para. 133. 
301 United States' first written submission, paras. 15 5-162.  United States' second written submission, 
paras. 34 and 36. WT/DS308/R 
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 8.104  The analysis of the likeness between importe d and domestic products for the purpose of 
Article III:4 covers the characteristics of the rele vant products and the extent of the competitive 
relationship between them.  The Appellate Body has said that: 
"As products that are in a competitive relationship in the marketplace could be 
affected through treatment of imports  'less favourable' than the treatment accorded to 
domestic  products, it follows that the word 'like' in Article III:4 is to be interpreted to 
apply to products that are in such a comp etitive relationship.  Thus, a determination 
of 'likeness' under Article III:4 is, fundame ntally, a determination about the nature 
and extent of a competitive relati onship between and among products."
302 
8.105  Beet sugar and cane sugar have already been f ound to be like products within the meaning of 
the first sentence of Article III:2 of the GATT 1994, as sweeteners in the production of soft drinks and 
syrups.303  Since the Appellate Body has clarified that "that the scope of 'like' in Article III:4 is 
broader than the scope of 'like' in Article III:2, first sentence"304, it follows that beet sugar and cane 
sugar are like products within the meaning of Article III:4. 
8.106  As regards the likeness of cane sugar and HFCS, the factors to be taken into account – the 
products' properties, nature and quality ; their end-uses in a given marke t; consumers' tastes and habits; 
and the tariff classification of the products – ar e the same as those examin ed by the panel when 
considering whether the two products were "direct ly competitive or substitutable" under Article III:2, 
second sentence.305  It is not necessary for the Panel to repeat its factual conclusions regarding those 
factors.  All that is necessary is that the Panel should consider, in the light of those factual conclusions, whether, and to what extent, the pro ducts involved are, or could be, in a competitive 
relationship in the marketplace and satisfy the "like products" criterion in Article III:4.  The Panel is 
satisfied that the facts amply demonstrate that, as  sweeteners for soft drinks and syrups, cane sugar 
and HFCS are in a close competitive relationship and that they undoubtedly can be considered as "like 
products" under Article III:4. 
(b) Measures affecting the internal use of sweeteners 
8.107  The United States claims that the LIEPS "affects" the use of beet sugar and HFCS, because 
they grant producers of soft drinks and syrups an  advantage (an exemption from the three challenged 
tax measures:  the soft drink tax, the distribu tion tax and the bookkeeping requirements) that is 
conditional on the use of a domestic sweetener, cane sugar.  The added burdens imposed on the use of 
beet sugar and HFCS would influence the producers'  choice of sweeteners.  In the United States' 
opinion, the best evidence of this effect is the fact that, after imposition of the tax measures, all 
Mexican bottlers of soft drinks and syrups that were  using HFCS, reverted to use of cane sugar.  The 
United States thus concludes that the LIEPS is a law "affecting" the "internal use" of beet sugar and 
HFCS.
306 
8.108  The term "affecting" in the expression "laws, regulations and requirements affecting [the] 
internal sale, offering for sale, purchase, transporta tion, distribution or use" in Article III:4 of the 
GATT 1994 has a broad scope.  As articulated in WT O and GATT jurisprudence, it "cover[s] not only 
laws and regulations which direc tly govern the conditions of sale or purchase but also any laws or 
                                                      
302 Appellate Body Report on EC – Asbestos , para. 99. 
303 See para. 8.36 above. 
304 Appellate Body Report on EC – Asbestos , para. 99.  Cf. Appellate Body Report on Japan – 
Alcoholic Beverages II , p. 19-21, DSR 1996:I, p. 97, at pp. 112-114. 
305 See paras. 8.69 to 8.77 above. 
306 United States' first written submission, para. 160.  United States' second written submission, 
para. 34.  United States response to Panel question No . 11, para. 26; question No. 21, para. 44; and question 
No. 55, para. 14.  WT/DS308/R 
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 regulations which might adversely modify the conditions of competition between domestic and 
imported products307."308 
8.109  The Panel has already concluded that two of the measures challenged by the United States 
under Article III:4 of the GATT 1994 (the soft dri nk tax and the distribution tax) are imposed on 
imported sweeteners in a manner inconsistent with Article III:2.309  The facts that were analysed by 
the Panel and led it to consider that th e two taxes "apply" to imported sweeteners,310 also support the 
conclusion that these taxes "affect" imported sweeteners. 
8.110  The LIEPS exempts producers of soft drinks and syrups from payment of the soft drink tax, 
contingent on the use of cane sugar as a sweetener.  On the other hand, producers of soft drinks and 
syrups that use any other sweeten er to sweeten their products, including beet sugar or HFCS, do not 
enjoy the same exemption.  Similarly, the LIEPS imposes a distribution tax on the provision of certain 
services, when these services are provided for the pur pose of transferring soft  drinks and syrups 
sweetened with non-cane suga r sweeteners.  Providers of the same services, when the soft drinks and 
syrups are sweetened with cane sugar, are exempted from the distribution tax.311 
8.111  The LIEPS also imposes a number of require ments (referred to in this case as the 
"bookkeeping requirements") on taxpayers who are s ubject to the soft drink tax and the distribution 
tax.312  The bookkeeping requirements include the following obligations: 
(a) Provide the tax authorities, in March of each year, in respect of the goods produced, 
transferred or imported in the immediately preceding year, with information regarding consumption of the goods by state and the corresponding tax, and the services provided by establishment in each state
313; 
(b) Provide the Tax Administration Service with quarterly information, in the months of 
April, July, October and January of the re levant year, on their 50 main customers and 
suppliers in the quarter immediately pr eceding that in which they filed their 
statement, in respect of such goods314; 
(c) Maintain physical volumetric controls of the goods manufactured, produced or 
bottled, as appropriate, and report quarterly, in  the months of April, July, October and 
January of the relevant year, on the monthly readings registered by each of the devices used for such controls, in the qua rter immediately preceding that in which 
they filed their statement
315; 
(d) In the case of importers or exporters of soft drinks or syrups, register in the sectoral 
register of importers and exporters, as appr opriate, kept by the Ministry of Finance 
and Public Credit316; and, 
                                                      
307 (footnote original)  Panel Report on Italy – Agricultural Machinery , para. 12. 
308 See, for example, Panel Report on Canada – Autos , para. 10.80. 
309 See paras. 8.59 and 8.96 above. 
310 See paras. 8.42 to 8.45 and 8.46 to 8. 50 above.  See also, para. 8.80 above. 
311 United States' first written submission, paras. 15 9-160.  United States' second written submission, 
paras. 34-36.  United States response to  Panel question No. 74, paras. 72-75. 
312 Mexico's response to Panel questions Nos. 22 and 50.  United States response to Panel question No. 
74, para. 76. 
313 LIEPS, article 19(VI). 
314 LIEPS, article 19(VIII). 
315 LIEPS, article 19(X). 
316 LIEPS, article 19(XI). WT/DS308/R 
Page 136  
 
 (e) Provide the Tax Administration Service with quarterly information, in the months of 
April, July, October and January of the re levant year, on the price, value and volume 
of each product transferred in the immediately preceding quarter.
317 
8.112  These bookkeeping requirements impose a burden on pr oducers of soft drinks and syrups in 
addition to the payment of the soft drink tax and th e distribution tax.  However, this burden does not 
extend to producers who use cane sugar rather than b eet sugar or HFCS as a sweetener.  In light of the 
previous considerations and the broad scope of th e expression "affect the internal sale, offering for 
sale, purchase, transportation, distribution, or use of imported products", the Pa nel considers that these 
bookkeeping requirements affect the "use" of import ed beet sugar and HFCS by the soft drinks 
industry. 
8.113  For the reasons indicated above, the Panel concl udes that the soft drink tax, the distribution 
tax and the bookkeeping requirements may be consider ed as measures that affect the internal use in 
Mexico of non-cane sugar sweeteners, such as beet sugar and HFCS, within the meaning of 
Article III:4 of the GATT 1994. 
(c) Less favourable treatment 
8.114  The United States argues that the IEPS accords less  favourable treatment to imports than that 
accorded to like products of national origin.  In the United States' opinion, this is because in relation 
to their use in the production of soft drinks and syrups, the challenged measu res bestow a substantive 
advantage on cane sugar that is not extended to non-cane sugar sweeteners, such as beet sugar or 
HFCS.  The United States does not contend that the challenged measures overtly discriminate 
between imported and domestic produc ts, but that they result in the latter being treated less favourably 
in practice .  Since in Mexico cane sugar is almost ex clusively a domestically produced sweetener, 
while HFCS is mostly an imported product and beet  sugar is exclusively an imported product, this 
advantage in fact implies that the measures affo rd imported HFCS and beet sugar less favourable 
treatment than that accorded to the lik e product of national origin, cane sugar.318 
8.115  The United States contends that almost all imported products are being accorded less 
favourable treatment as a result of the applicati on of the challenged measures, since almost all 
imported products are comprised of non-cane sugar sweeteners and the only sweetener exempted from 
the measures (cane sugar) is al most exclusively a domestic product.  As the following paragraphs 
explain, the Panel finds that the facts of the case support this contention. Ho wever, the Panel refrains 
from ruling on whether such a finding is necessary in  order for the United States to establish its claim 
under Article III:4 of the GATT 1994. 
8.116  The LIEPS establishes a different regime for two gr oups of soft drinks and syrups.  One group 
of soft drinks and syrups is subject to the payment of a soft drink tax and a distribution tax and to the 
fulfilment of certain bookkeeping requirements, while  the other group is exempted from these taxes 
and requirements.  The criterion established by the Me xican legislation for the division of soft drinks 
and syrups into these two groups is whether the soft  drinks and syrups are sweetened with cane sugar 
or with non-cane sugar sweeteners, such as beet s ugar or HFCS.  These measures have the effect of 
penalizing the consumption of non-can e sugar sweeteners by industrial  producers of soft drinks and 
syrups.  Producers who opt for the use of non-cane sugar sweeteners, such as beet sugar or HFCS, in the preparation of their soft drinks and syrups are subject to the payment of taxes and to the completion of requirements that are not demanded of those producers who use cane sugar instead. 
                                                     
 
317 LIEPS, article 19(XIII). 
318 United States' first written submission, paras. 16 1-162.  United States' second written submission, 
paras. 34 and 36.  WT/DS308/R 
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 8.117  The challenged measures create an economic incentive for producers to use cane sugar as a 
sweetener in the production of soft drinks and syr ups, instead of other non-cane sugar sweeteners such 
as beet sugar or HFCS.  This incentive is created by  conferring an advantage (the exemption from the 
soft drink tax, the distribution tax and the bookkeeping requirements) on those producers that use cane sugar instead of non-cane sugar sweeteners, such  as beet sugar or HFCS.  These measures do not 
legally impede producers from using non-cane sugar sweeteners, such as beet sugar or HFCS.  
However, they significantly modify the conditions  of competition between cane sugar, on the one 
hand, and non-cane sugar sweeteners, such as beet sugar or HFCS, on the other.  Indeed, there is 
evidence that the imposition of these measures reverted  the trend that was seemingly under way in the 
Mexican market towards the replacement of cane suga r as an industrial sweetener in the production of 
soft drinks and syrups, for non-cane sugar sweeteners, such as HFCS.
319 
8.118  The description of the soft drink tax, the dist ribution tax, and the bookkeeping requirements, 
and the fact that they are imposed only on soft drinks and syrups that contain non-cane sugar 
sweeteners, leaves no doubt that the soft drinks and syrups sweetened with beet sugar and HFCS are 
less favourably treated. The measures therefore alte r the conditions of competition in the Mexican 
market in favour of cane sugar and to the detrimen t of non-cane sugar sweeteners, such as beet sugar 
or HFCS, according a less favourable treatment to  the latter than that accorded to cane sugar. 
8.119  The evidence demonstrates that, although on their face the challenged measures do not 
distinguish between imported and dom estic sweeteners, the distinction they make between the use of 
cane sugar and non-cane sugar sweeteners is, in fact , one that distinguishes between imported and 
domestic sweeteners.  Domestically produced sweet eners in Mexico consist overwhelmingly of cane 
sugar.  In the years prior to the imposition of th e challenged measures, production of HFCS started to 
develop in Mexico, mainly to satisfy the demand for sweeteners by the domestic soft drinks and 
syrups industry.  However, even in 2001, when  HFCS reached its highest share of the Mexican 
sweetener market, it still represented less than 10 per cent, with cane sugar accounting for almost all 
the rest.  Coinciding with the imposition of the challenged measures, Mexican production of HFCS 
started to decline.320 
8.120  In turn, before the challenged measures were instituted, as a group imported sweeteners in 
Mexico were overwhelmingly cons tituted by non-cane sugar sweeteners.  In the five years from 1997 
to 2001, non-cane sugar sweeteners, consisting almo st entirely of HFCS, represented almost 100 per 
cent of total Mexican imports of sweeteners.  Imports of cane sugar during that period represented less than 1 per cent of total Mexican imports of sweeteners in each year.
321 
8.121  In conclusion, it is evident that in practice the challenged measures detrimentally affect the 
competitive situation of the imported sweeteners that  the producers of soft drinks and syrups could 
have chosen (mostly HFCS), when compared to that  of the most widely available domestic sweetener 
(i.e., cane sugar). 
8.122  Consequently, the Panel finds that the challe nged measures accord less favourable treatment 
to imported non-cane sugar sweeteners, such as beet  sugar and HFCS, than that accorded to like 
products of national origin. 
                                                      
319 United States' first written submission, paras. 25-26.  United States response to Panel question No. 
72, para. 59. 
320 United States' first written submission, paras. 16 a nd 23-25.  See also, Exhi bits US-11(b), US-11(c), 
US-11(d) and US-11(e). 
321 United States' first written submission, para. 25.  See also Exhibit US-42. WT/DS308/R 
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 5. Conclusions 
8.123  For the reasons indicated (and subject to the qualification made above
322, regarding the 
Panel's findings that the soft drink tax and the dist ribution tax are inconsistent with Article III:2 as 
regards imported beet sugar and imported HFCS), the Panel concludes that, through the soft drink tax, 
the distribution tax and the bookkeeping requirement s, Mexico accords less favourable treatment to 
imported non-cane sugar sweeteners, such as beet sugar and HFCS, than that accorded to like 
products of national origin, i.e ., cane sugar.  These measures are therefore inconsistent with 
Article III:4 of the GATT 1994. 
F. THE UNITED STATES ' CLAIMS REGARDING SOFT DRINKS AND SYRUPS UNDER THE FIRST 
SENTENCE OF ARTICLE III:2  OF GATT  1994 
1. The United States' claims 
8.124  The United States requests the Panel to find that two of the challenged tax measures, 
specifically the soft drink tax and the distribution tax, are inconsistent with the first sentence of 
Article III:2, because they are internal taxes impos ed on imported soft drinks and syrups sweetened 
with HFCS and beet sugar in excess of the taxes a pplied to the like domestic product, i.e., soft drinks 
and syrups sweetened with cane sugar.323 
8.125  With regard to the soft drink tax, the United States argues that the measure is imposed at the 
time of importation into Mexico of all soft drinks  and syrups, regardless of the type of sweetener 
used.324  The tax is also imposed on internal transfer s of soft drinks and syrups, except for those 
exclusively sweetened with cane sugar (and with th e exception of public sales).  The distribution tax 
is imposed on the provision of certain services (a gency, representation, brokerage, consignment and 
distribution) for soft drinks and syrups, except for those exclusively sweetened with cane sugar. 325 
8.126  The United States observes that the vast major ity of soft drinks and syrups produced in 
Mexico are sweetened with cane sugar, while in the United States the sweetener of choice for soft 
drink and syrup production is HFCS.326  Since soft drinks and syrups sweetened with non-cane sugar 
sweeteners, such as HFCS and beet sugar, and Mexican domestic soft drinks and syrups sweetened 
with cane sugar are "like" products, the United States submits that the imposition of the soft drink tax 
and the distribution tax subjects imported products to taxes higher than those applied to the like domestic product, in a manner inconsistent with th e first sentence of Article III:2 of the GATT 1994. 
2. Mexico's response 
8.127  Mexico does not respond to these United States' claims.
327 
3. Panel's analysis 
8.128  As was done with respect to the treatment accorded  to beet sugar, the Panel will analyse the 
consistency of the challenged measures with Arti cle III:2, first sentence, by considering two 
                                                      
322 See para. 8.102 above. 
323 United States' first written submission, paras. 57 and 62-90.  United States' second written 
submission, paras. 23 and 25-31. 
324 United States response to Panel question No. 13, para. 29 and question No. 14, paras. 30-32. 
325 United States' first written submission, paras. 59 , 60, 85 and 89.  United States' second written 
submission, para. 9. 
326 United States' first written submission, para. 56. 
327 Mexico's first written submission, para. 114.  Mexico's response to Panel question No. 9.  WT/DS308/R 
 Page 139 
 
 
 questions.  First, whether the imported and domestic  products are like products.  Second, whether the 
imported products are subject to taxes in excess of those applied to the like domestic products.328 
(a) Likeness of products 
8.129  The United States contends that imported soft dr inks and syrups and domestic soft drinks and 
syrups are alike, because soft drinks and syrups sweetened with non-cane suga r sweeteners including 
HFCS and beet sugar (which are mostly imported) , are like those sweetened with cane sugar (which 
are mostly domestic).329  According to the United States, soft drinks sweetened with non-cane sugar 
sweeteners, in particular, with HFCS and beet su gar, and those sweetened with cane sugar, have 
"virtually identical" characteristics in terms of physical properties, end-uses, consumer tastes and habits, and tariff classification.
330 
8.130  Under the principles established by previous  GATT and WTO dispute settlement bodies, the 
Panel will determine the "likeness" of the products by examining the products' properties, nature and 
quality; their end-uses in the given market; consum ers' perceptions and be haviour; and the products' 
tariff classification.331 
(i) Products' properties, nature and quality 
8.131  Regarding the physical characteristics of the soft drinks, both types of products (soft drinks 
and syrups sweetened with non-cane sugar sweeteners and soft drinks and syrups sweetened with cane 
sugar) are virtually identical.  They have identi cal physical appearances.  They are virtually 
indistinguishable by the human body, since they contain similar amounts of calories and are digested and absorbed in the same manner.  Since caloric  non-cane sugar sweeteners (HFCS and beet sugar) 
and cane sugar have a very similar chemical comp osition, it follows that soft drinks and syrups 
sweetened with non-cane sugar sweeteners and soft dr inks and syrups sweetene d with cane sugar have 
nearly the same chemical composition.  In countri es such as Mexico and the United States, both types 
of soft drinks and syrups are usually indistinguis hable on the basis of their ingredient labels, since 
both generally bear the same ingredient inscription on the label.
332 
(ii) Products' end-uses 
8.132  As the United States has contended, it is evident that soft drinks and syrups, regardless of the 
caloric sweetener used, share identical end-uses.  Both types of products may be drunk for quenching 
thirst, providing energy or nourishment, or for socializ ation; they may be drunk straight or mixed with 
other beverages; they may be consumed before, afte r or during meals; and they may be consumed at 
home or in public places alike, regardless of whether they are sweetened with HFCS or beet sugar or 
with cane sugar.333 
8.133  The evidence also indicates that, regardless of the caloric sweetener used, soft drinks and 
syrups use similar distribution channels.  The Unite d States has quoted major producers of soft drinks 
(Coca-Cola  and the Pepsi Bottling Group ) to the effect that there are no differences in the distribution 
channels used for these products.  Retail seems to be  the primary distribution channel in both Mexico 
                                                      
328 Appellate Body Report on Canada – Periodicals , p. 24, DSR 1997:I, p. 449, at p. 465-466.  
329 United States second written submission, para. 23. 
330 United States first written submission, paras. 66 -83.  United States second written submission, 
paras. 23 and 26-29.  United States responses to Panel que stion No.. 18, para. 39, and question No. 74, paras. 68 
and 69. 
331 Appellate Body Report on Canada – Periodicals , p. 21, DSR 1997:I, p. 449, at p. 466.  See also, 
Appellate Body Report on Japan – Alcoholic Beverages II , pp. 21-22, DSR 1996:I, p. 97, at p. 113. 
332 Exhibits US-22 and US-37(a), table 1 (original in Spanish). 
333  United States first written submission, para. 72 and footnote 117.  Exhibit US-38. WT/DS308/R 
Page 140  
 
 (where most soft drinks are sweetened with cane s ugar) and the United States (where most soft drinks 
are sweetened with HFCS).  Considering the evid ence, there is no indication that channels of 
distribution for major producers of soft drinks in  Mexico changed during the 1990s through 2001, 
even though the producers switched from cane sugar to a blend of HFCS and sugar, and then again to 
cane sugar during this period.
334 
(iii) Consumers' perceptions and behaviour 
8.134  Regarding consumer tastes and preferences, th e United States has indicated that surveys and 
taste tests conducted by soft drinks bottlers dem onstrate that consumers do not show any consistent 
pattern of preference for soft drinks sweetened with  sugar versus soft drinks sweetened with HFCS, 
nor do they detect any significan t difference in taste and sweetness.335  There is also evidence that in 
Mexico, under labelling regulations, labels w ill generally identify "all monosaccharides and 
disaccharides that are present in a non-al coholic food or beverage" as "sugars" ( azúcares ), so that 
consumers may not even be aware of the specific type of caloric sweetener used.336  Also, marketing 
strategies in Mexico seem not to have changed when the largest local bottler of soft drinks switched to 
a blend of sugar and HFCS, instead of pure cane sugar, from 1996 through 2003.337  All these facts 
support the conclusion that there is no perceived consumer preference for any of the considered 
products based exclusively on the type of caloric sw eetener that is used.  Indeed, the difficulty for 
consumers to distinguish between soft drinks and syrups sweetened with HFCS and those sweetened 
with cane sugar is not a matter of chance.  HFCS was designed to mimic sugar as much as possible, in 
order to be an alternative industrial sweetener.338 
(iv) Tariff classification of the products 
8.135  With respect to their tariff classification, Mexi co does not draw any distinction between soft 
drinks and syrups on the basis of the type of sweet ener used (cane sugar, beet sugar or HFCS).  Its 
tariff schedule classifies soft drinks and syrups as follows: 
(a) soft drinks, hydrating and rehydra ting beverages: 2202.10 and 2202.90 
(b) syrups (including concentrates, powders , essences and extracts): 2101.11, 2101.12, 
2101.20, 2101.30, 2106.90.05, 2106.90.06 and 2106.90.07.339 
(v) Conclusion 
8.136  In view of these considerations, the Panel conc ludes that soft drinks and syrups sweetened 
with HFCS and soft drinks and syrups sweetened  with cane sugar are "like products" for the purposes 
of Article III:2, first sentence of the GATT 1994.  HF CS and cane sugar have a slight difference in the 
exact ratio of their component s (i.e. fructose to glucose) 340, but the difference between both products 
is not enough to make soft drinks  sweetened with one or the other not "like".  Likewise, the Panel 
finds that soft drinks and syrups sweetened with b eet sugar and soft drinks and syrups sweetened with 
cane sugar are "like products" for the purposes of th is provision.  In fact, the two are virtually 
identical.  
                                                      
334 United States first written submission, paras. 73-76 .  Exhibits US-16, US-1 8, US-19, US-20, US-24 
and US-39. 
335 United States first written submission, paras. 77, 78 and 99. 
336 United States first written submission, paras. 68-71 and 111.  Exhibits US-36 and US-37. 
337 United States first written submission, para. 81. 
338 United States first written submission, para. 107. 
339 United States first written submission, paras. 27 an d 82.  Exhibit US-43.  Mexico's response to Panel 
question No. 44. 
340 See footnote 115 of the United States first written submission.  WT/DS308/R 
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 (b) Taxed in excess 
8.137  Having determined that soft drinks and syrups  sweetened with beet sugar and HFCS may be 
regarded as "like products" when comp ared with soft drinks and syru ps sweetened with cane sugar, 
the Panel will now turn to the issue of whether, through the soft drink tax and the distribution tax, 
Mexico is subjecting, directly or indire ctly, imported products to internal taxes in excess  of those 
applied, directly or indirectly, to like domestic products, in a manner inconsistent with the first 
sentence of Article III:2 of the GATT. 
8.138  The challenged tax measures (soft drink tax and th e distribution tax) are applied at different 
points in time.  First, at the time of importation, the soft drink tax is applied to  all imported soft drinks 
and syrups, regardless of the sweetener used.  S econd, once imported soft drinks and syrups clear 
customs and enter into the Mexican market, the soft dr ink tax is applied to soft drinks sweetened with 
non-cane sugar sweeteners upon each internal transfer (w ith the exception of public sales).  Third, the 
distribution tax is applied to soft drinks and sy rups sweetened with non-cane sugar sweeteners on the 
provision of certain services within Mexico.  Th e Panel will examine the challenged tax measures 
considering these three points in time to determine whether they are imposed on imported soft drinks 
and syrups in excess of the taxes imposed on like domestic soft drinks and syrups.341 
(i) Soft drink tax at the time of importation 
8.139  At the time when the DSB established this Pane l and approved its terms of reference, Mexico 
was imposing a 20 per cent tax (the soft drink tax)  on "all imported soft drinks and syrups" at the 
point of importation, regardless of the sweetener used.342  The United States argues that this tax 
discriminated on its face against imports, since it was not applied to domestic products.343 
Amendments to the LIEPS  
8.140  In November 2004, the Mexican Congress amended the LIEPS with the effect that, from 
January 2005, imported soft drinks and syrups qu alify for the exemption from payment of the soft 
drink tax, as long as they are sweetened exclusively with cane sugar.344 
8.141  The United States argues that the Panel should not  take such amendment into consideration, 
because it is outside the Panel's terms of reference.  It submits that the measures before the Panel are 
Mexico's tax measures as they stood when this Pa nel was established, which were embodied in the 
text of the LIEPS published on 1 January 2002 a nd its subsequent ame ndments published on 30 
December 2002 and 31 December 2003.345  Mexico responds that the Panel has the power to consider 
the amendments to the LIEPS in the context of this dispute.  In its opinion, the obligation contained in 
Article 11 of the DSU, under which a Panel must assist the DSB in discharging its responsibilities 
under the DSU by making an objective assessment of the matter before it, require panels to take into 
account events which occurred during the proceedi ngs, including amendments to the measures at 
issue.346 
                                                      
341 United States first written submission, paras. 38-44. 
342 Mexico's response to Panel question No. 45. 
343 United States second written submission, para. 11. 
344 Mexico's response to Panel questions Nos. 45, 50 and 52.  Exhibit MEX-46. 
345 United States second written submission, para. 32.  United States response to Panel question No. 52, 
paras. 1-6. 
346 Mexico's response to Panel question No. 52. WT/DS308/R 
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 8.142  In respect of these arguments, the Panel first not es that the entry into fo rce of the amendments 
to the LIEPS occurred after the date of es tablishment of the Panel (6 July 2004).
347  The parties do not 
claim that the amendments are within the Panel' s terms of reference.  In its request for the 
establishment of a panel in this case, the United States  identified the measures at issue as the "Law on 
the Special Tax on Production and Services ( Ley del Impuesto Especial sobre Producción y Servicios  
or "IEPS") published on 1 January 2002 and its s ubsequent amendments published on 30 December 
2002 and 31 December 2003".348  The specific reference made by the United States to "subsequent 
amendments published on 30 December 2002 and 31 D ecember 2003" is not broad enough to include 
further amendments that came after the establishment of the Panel349, and consideration of such 
amendments does not seem necessar y to secure a positive solution to  the present dispute for the 
reasons explained below. 
8.143  Several previous panels have refrained from making findings on measures terminated before 
their establishment.350  In Argentina – Textiles and Apparel , the panel declined to rule on a measure 
that was "revoked before the Panel was established and its term of reference set, i.e. before the Panel 
started its adjudication process"351, even though the measure had b een included in its terms of 
reference.  The panel cited in its support the statem ent of the Appellate Body that the aim of dispute 
settlement is not: 
"[T]o encourage either panels or the Appe llate Body to 'make law' by clarifying 
existing provisions of the WTO Agreement  outside the context of resolving a 
particular dispute.  A panel need only address those claims which must be addressed in order to resolve the matter in issue in the dispute."
352 
8.144  In the present case, however, the amendments to  the LIEPS entered into force on 1 January 
2005, which was six months after the establishment of the Panel.  Furthermore, the effects of the new 
amendments seem to be limited to only part of the claims against the challenged measures, i.e. the 
imposition of the soft drink tax to all imported soft drinks and syrups at the point of importation, 
regardless of the sweetener used.  The Panel recal ls that the Appellate Body has said that "the 
demands of due process are such that a complaining party should not have to  adjust its pleadings 
throughout dispute settlement proceedings in orde r to deal with a disputed measure as a 'moving 
target'."353  Given its terms of reference354, in the light of the obligations contained in Article 11 of the 
Dispute Settlement Understanding, and without an agreement between the parties to terminate the 
proceedings as regards this aspect of the contested measures, the Panel considers there is no basis for 
it to abstain from ruling on the complaint made by the United States.  Indeed, several panels have 
                                                      
347 "Mexico – Tax Measures on Soft Drinks and othe r Beverages.  Constitution of the Panel Established 
at the Request of the United States.  Note by the Secretariat".  Doc. WT/DS308/5/Rev.1 of 25 August 2004. 
348 See, "Mexico – Tax Measures on Soft Drinks and other Beverages.  Request for the Establishment 
of a Panel by the United States".  Doc. WT/DS308/4 of 11 June 2004. 
349 See, Appellate Body Report on Chile – Price Band System , para. 144. 
350 See, for example, Panel report on US – Gasoline , and Panel Report on Argentina – Textiles and 
Apparel . 
351 Panel report on Argentina – Textiles and Apparel , para. 6.13. 
352 Appellate Body Report on US – Wool Shirts and Blouses , p. 19, DSR 1997:I, p. 323 at p. 340. 
353 Appellate Body Report on Chile – Price Band System , para. 144.  
354 See, "Mexico – Tax Measures on Soft Drinks and other Beverages.  Constitution of the Panel 
Established at the Request of the United States.  Note by the Secretariat".  Doc.  WT/DS308/5 of 20 August 
2004.  See also, "Mexico – Tax Measures on Soft Drinks and other Beverages.  Request for the Establishment of 
a Panel by the United States".  Doc. WT/DS308/4 of 11 June 2004.  WT/DS308/R 
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 reached the same conclusion, when examining me asures terminated before or during the panel 
process.355 
Soft drink tax at the time of importation  
8.145  The Panel will therefore examine the soft drink tax as it stood on 6 July 2004, in respect of its 
application at the point of importation.356  There is no question that the imported soft drinks and 
syrups were directly subject to the soft drink tax.  The same tax is also dir ectly applied on internal 
transfers of the product domestically, as long as the soft  drinks or syrups are not sweetened with cane 
sugar.357  According to Ad Article III of the GATT 1994: 
"Any internal tax or other internal charge , or any law, regulation or requirement of 
the kind referred to in paragraph 1 which applies to an imported product and to the 
like domestic product and is collected or en forced in the case of the imported product 
at the time or point of importation, is nevert heless to be regarded as an internal tax or 
other internal charge, or a law, regulation or requirement of the kind referred to in 
paragraph 1, and is accordingly subject  to the provisions of Article III." 
8.146  The Panel has already discussed the meaning of the term "in excess of".358  This term has 
been interpreted very strictly, and encompasses even the slightest differe nce in the level of taxes.  The 
Appellate Body has said that "[e]ven the smallest amo unt of 'excess' is too much.  'The prohibition of 
discriminatory taxes in Article III:2, first sentence, is not conditional on a "trade effects test" nor is it 
qualified by a de minimis standard.'"359  There can be no doubt that a tax difference of 20 per cent can 
be regarded as "in excess". 
Conclusion  
8.147  Since at the point of importation all imported soft drinks and syrups, whether sweetened with 
cane or beet sugar or with HFCS, were subject to a tax in excess of the tax applied to the like 
domestic products (soft drinks and sy rups sweetened with cane sugar), the soft drink tax is in this 
respect inconsistent with Article III:2, first sentence, of the GATT 1994. 
(ii) Soft drink tax on internal transfers 
8.148  Mexico also imposes a 20 per cent soft drink tax on internal transfers of soft drinks and 
syrups sweetened with non-cane s ugar sweeteners, including HFCS and beet sugar.  An exemption 
from this tax is available only for those soft dri nks and syrups that are sweetened with cane sugar.360  
                                                      
355 See, for example, Panel Report on US – Certain EC Products ; Panel Report on US – Wool Shirts 
and Blouses ; Panel Report on Indonesia – Autos ; Panel Report on Chile – Price Band System ; and, Panel Report 
on Canada – Wheat Exports and Grain Imports . 
356 LIEPS, article 1 (I).  United States first writte n submission, paras. 85-86.  United States second 
written submission, paras. 11, 23, 30-31.  United States  response to Panel question No. 14, para. 30; question 
No. 27, paras. 59-60; and question No. 74, para. 73. 
357 Domestic soft drinks and syrups sweetened with  cane sugar are exempted from the soft drink tax on 
their internal transfers under Article 8 of the LIEPS. 
358 See para. 8.52 above. 
359  Appellate Body Report on Japan – Alcoholic Beverages , p. 23, DSR 1996:I, p. 97, at p. 115. 
360 United States response to Panel questions Nos. 14, 27 and 74. WT/DS308/R 
Page 144  
 
 The United States claims that th is aspect of the tax constitutes de facto  discrimination and is 
inconsistent with Article III:2,  first sentence, of the GATT 1994.
361 
8.149  The Panel has already concluded that, in regard to internal transfers, as a result of the soft 
drink tax, beet sugar used as a sweetener in soft drin ks and syrups is subject, directly or indirectly, to 
a tax in excess of that applied to the like domest ic product, because of the non-application of that tax 
when the sweetener used is cane sugar and considerin g that the burden of the tax can be expected to 
fall, at least in part, on the products containing the sweetener.362  By the same logic, the Panel finds 
that the soft drinks and syrups sweetened with beet sugar or HFCS are subject, directly or indirectly, to the soft drink tax.  Furthermore, as concluded above
363, a difference of 20 per cent tax undoubtedly 
meets the "in excess of" criterion.  Finally, the Panel notes that soft drinks and syrups imported into 
Mexico are sweetened primarily with non-cane suga r sweeteners (HFCS or beet sugar), whereas 
Mexican domestic soft drinks and syrups  are sweetened primarily with cane sugar.364  Since the latter 
are the main beneficiaries of the exemption from th e tax, and using the logic that it applied to the 
discrimination regarding sweeteners365, the Panel concludes that, although the soft drink tax does not 
on its face distinguish between imported and domes tic products, it has this result in practice. 
(iii) Distribution tax 
8.150  The United States also claims that the distribution tax of 20 per cent, which is charged on 
representation, brokerage, agency, c onsignment and distribution provided in relation with soft drinks 
or syrups sweetened with non-cane sugar sweeteners, is  inconsistent with Article III:2, first sentence.  
This is because no such tax is applied to such servi ces when provided in rela tion to soft drinks or 
syrups sweetened with cane sugar.  In this instance also the United States argues that the 
discrimination is de facto .366 
8.151  The distribution tax is imposed on certain services provided for the purpose of transferring 
one group of soft drinks and syrups, while the same  services related to anothe r group of soft drinks 
and syrups are exempted from the tax, based only on  the consideration of whether those soft drinks 
and syrups are sweetened with cane suga r or with non-cane sugar sweeteners. 
8.152  The Panel has already concluded that the impositi on of the distribution tax, based solely on 
the nature of the sweetener used, and considering that  the burden of the tax can be expected to fall, at 
least in part, on the products containing the sweeten er, creates a connection such that the tax can also 
be regarded as a tax indirectly  imposed on non-cane sugar sweeteners.367  By the same logic, the Panel 
finds that, while on its face the distribution tax is a tax on the provision of certain services, in the circumstances of this case, it is also a tax applied indirectly  on soft drinks and syrups.  Furthermore, 
as concluded above
368, assuming that the services provided have some value, the 20 per cent 
ad valorem  tax on those services will result in an additi onal tax on soft drinks and syrups sweetened 
with non-cane sugar sweeteners.  That figure would have  to be compared with the tax rate applied to 
                                                      
361 United States first written submission, para. 87.  United States second written submission, paras. 11, 
23, 30-31 and 33.  United States response to Panel questi on No. 14, paras. 30-31; question No. 27, paras. 59 and 
61; and question No. 74, paras. 71-74. 
362 See para. 8.59 above. 
363 See para. 8.146 above. 
364 United States first written submission, paras. 30 , 32 and 35.  Exhibits US-8, US-10, US-13 and 
US-57. 
365 See paras. 8.55 to 8.58 above. 
366  United States first written submission, paras. 89-90.  United States second written submission, 
paras. 11, 23, 30-31.  United States response to Panel question No. 14, para. 32; question No. 27, paras. 59 and 
61; question No. 74, paras. 71-74. 
367 See para. 8.48 above. 
368 See para. 8.51 above.  WT/DS308/R 
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 the provision of services related to soft drinks and syrups sweetened w ith cane sugar, the like 
domestic product, which is zero per cent.  There can be no doubt that the former is "in excess" of the 
latter.  Finally, using the same logic that it applie d to the discrimination regarding the soft drink tax369, 
the Panel concludes that, although the distributi on tax does not on its face distinguish between 
imported and domestic products, it has this result in practice. 
(iv) Taxes imposed in excess 
8.153  Considering the respective groups of products th at are subject to the soft drink tax and the 
distribution tax, domestic soft drinks and syrups ar e the main beneficiaries of the tax exemption under 
the LIEPS.  Indeed, most domestic soft drinks and sy rups in Mexico are sweetened with cane sugar, 
while most imported soft drinks and syrups are sweetened with non-cane suga r sweeteners, such as 
HFCS. 
8.154  In light of the above, a soft drink tax and a distribution tax imposed only on soft drinks and 
syrups with non-cane sugar sweeteners, most of whic h are imported, and not applied to soft drinks 
and syrups sweetened with cane sugar, most of which are domestic, may be regarded as a tax imposed on imports "in excess of" that imposed on like domestic products. 
4. Conclusion 
8.155  For the reasons given above, the Panel concludes that, at the ti me of establishment of this 
Panel, the soft drink tax, as applied by Mexico at  the point of importation, subjected soft drinks and 
syrups imported into Mexico to internal taxes in  excess of those directly applied to like domestic 
products, in a manner inconsiste nt with Article III:2, first sentence, of the GATT 1994. 
8.156  The Panel also finds that the soft drink tax,  as applied on internal transfers in Mexico, 
subjects imported soft drinks and syrups to intern al taxes in excess of those directly applied to like 
domestic products, in a manner inc onsistent with Article III:2, first sentence, of the GATT 1994. 
8.157  Finally, the Panel finds that the distribution tax, as applied on the provision of certain 
services, when those services are provided for the pur pose of transferring soft drinks and syrups 
sweetened with non-cane suga r sweeteners, subjects imported soft dr inks and syrups to internal taxes 
in excess of those indirectly applied to like dom estic products, in a manne r inconsistent with 
Article III:2, first sentence, of the GATT 1994. 
G. T
HE UNITED STATES ' CLAIMS REGARDING SOFT DRINKS AND SYRUPS UNDER THE SECOND 
SENTENCE OF ARTICLE III:2  OF GATT  1994 
1. The United States' claims 
8.158  The United States also argues that two of the challenged tax measures, specifically the soft 
drink tax and the distribution tax, are inconsiste nt with the second sentence of Article III:2 of GATT 
1994, because soft drinks and syrups sweetened with HFCS and beet sugar and the directly 
competitive or substitutable products, i.e., soft dr inks and syrups sweetened with cane sugar, are 
dissimilarly taxed, so as to afford protection to domestic production.370 
8.159  The United States presents this cl aim only as an alternative should the Panel not consider that 
soft drinks and syrups sweetened with HFCS a nd those sweetened with cane sugar are like products, 
                                                      
369 See para. 8.149 above. 
370  United States first written submission, paras. 141-152. WT/DS308/R 
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 and that the soft drink tax and the distribution tax ar e in this respect inconsistent with Article III:2, 
first sentence, of the GATT 1994.
371 
2. Mexico's response 
8.160  Mexico's only response to this claim is that its  measures are not intended to afford protection 
to its domestic production within the meaning of Article III of the GATT.372 
3. Panel's analysis 
8.161  The panel has already determined that the soft drink tax and the distribution tax, as applied by 
Mexico on soft drinks and syrups , are inconsistent with Article III:2, first sentence, of the GATT 
1994.373  Since the condition set by the United States has therefore not been fulfilled, the Panel will 
not address this claim. 
H. MEXICO 'S DEFENCE UNDER PARAGRAPH (D) OF ARTICLE  XX  OF GATT  1994 
1. Mexico's defence 
8.162  As described above, for the most part Mexico  has not presented rebuttal arguments regarding 
the United States' claims under Article III of GATT 1 994.  Mexico argues, however, that if the IEPS 
taxes are found by the Panel to violate Article III, the measures are nevertheless justifiable under 
Article XX(d) of GATT 1994.374  In its opinion, the measures are "necessary to secure compliance" by 
the United States with the United States' obligati ons under the NAFTA, an international agreement 
that is a law not inconsistent with the provisions of the GATT 1994.375  Mexico does not claim any 
justification for its measures other than that provi ded through Article XX(d).  Furthermore, although 
Mexico has characterized its actions as an exercise of countermeasures, as recognized under 
international law376, it does not seem to be suggesting that the international law rules governing such 
actions should affect the inte rpretation of Article XX(d). 
2. The United States' response 
8.163  The United States responds that, although Article XX(d) of GATT 1994 permits a WTO 
Member to maintain measures that are "necessary to secure compliance with laws or regulations 
which are not inconsistent" with the provisions of the GATT 1994, the NAFTA is not a "law or 
regulation," and Mexico's taxes are not "necessary to  secure compliance."  In its opinion, nothing in 
Article XX(d) supports the contention that a WTO Me mber may violate its WTO obligations in order 
to punish another Member because the former th inks that the latter has not complied with its 
                                                      
371 United States responses to Panel questions, question No. 18, para. 39.  United States second written 
submission, paras. 23-24. 
372 Mexico's first written submission, section III.D.  Mexico's responses to Panel questions, question 
No. 83.  Written version of Mexico's oral statement duri ng second substantive meeting of the Panel with the 
parties, para. 18. 
373 See paras. 8.155 to 8.157 above. 
374 Mexico's first written submission, paras. 115-138. 
375 Mexico's first written submission, paras. 117-118 and 125. 
376 See, for example, written version of Mexico's oral statement during second substantive meeting of 
the Panel with the parties, para. 3.  WT/DS308/R 
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 obligations under another international agreement.377  The United States adds that Mexico's measures 
are also incompatible with the requirements of the chapeau  to Article XX .378 
3. Article XX(d) of GATT 1994 
8.164  According to the chapeau  and paragraph (d) of Article XX of the GATT: 
"Subject to the requirement that such me asures are not applied in a manner which 
would constitute a means of arbitrary or unjustifiable discrimination between 
countries where the same conditions prev ail, or a disguised restriction on 
international trade, nothing in this Agre ement shall be construed to prevent the 
adoption or enforcement by any cont racting party of measures: [...] 
(d) necessary to secure compliance with laws or regulations which 
are not inconsistent with the provisions of this Agreement, including 
those relating to customs enfo rcement, the enforcement of 
monopolies operated under paragraph 4 of Article II and Article XVII, the protection of patents, trade marks and copyrights, and the prevention of deceptive practices;" 
4. Panel's analysis 
(a) Order of analysis 
8.165  The Panel will follow the well-established two-tiere d process of analysis elaborated by the 
Appellate Body in US – Gasoline : 
"In order that the justifying protection of  Article XX may be extended to it, the 
measure at issue must not only come under one or another of the particular exceptions 
- paragraphs (a) to (j) - listed under Article XX;  it must also satisfy the requirements 
imposed by the opening clauses of Article XX."
379 
8.166  The burden lies on Mexico, as the party invoki ng the affirmative defence provided by 
Article XX(d), to demonstrate that the measures wh ich the Panel has found to be inconsistent with 
Article III, satisfy the requirements of the invoked defence.380 
8.167  Regarding the first stage in the application of  Article XX, the Panel will follow the order of 
analysis set out by the Appellate Body: 
"For a measure, otherwise inconsistent with  GATT 1994, to be justified provisionally 
under paragraph (d) of Article XX, two elemen ts must be shown.  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.  A Member who invokes 
                                                     
 
377 Written version of United States' oral statement during first substantive meeting of the Panel with 
the parties, paras. 7-8.  United States second written submission, paras. 41-67. 
378 United States second written submission, paras. 68-73. 
379 Appellate Body Report on US – Gasoline , p. 22, DSR 1996:I, p. 3, at p. 20. 
380 Appellate Body Report on Korea – Various Measures on Beef, para. 157.  See also, Appellate Body 
Report on US – Gambling , para. 309. WT/DS308/R 
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 Article XX(d) as a justification has the burden of demonstrating that these two 
requirements are met.
 381"382 
(b) Designed to secure compliance with laws or regulations 
8.168  Mexico argues that the challenged tax measur es are "designed to secure compliance" by the 
United States with the NAFTA, a law that is not  inconsistent with the provisions of the GATT 
1994.383 
8.169  In order to determine whether a measure ma y be considered to be "designed to secure 
compliance", the Panel will look at the meaning of the expression "to secure compliance".  It will then 
examine the issue of the design of the measures. Finally, it will address the issue of whether the 
NAFTA may be considered to be part of the la ws and regulations cove red by paragraph (d). 
(i) To secure compliance 
8.170  Mexico argues that the tax measures at issue are justifiable under Article XX(d) as "necessary 
to secure compliance" by the United States with th e United States' obligations under the NAFTA.  In 
Mexico's opinion, this provision allows WTO Memb ers to adopt measures that are necessary to secure 
compliance by another Member with the latter's intern ational obligations arising from a treaty that is 
not one of the WTO "covered agreements".  Mexico re fers to its IEPS taxes on soft drinks and syrups 
as "temporary and proportionate measures" intended to induce the United States to comply with what 
Mexico says are its NAFTA obligations regarding ma rket access conditions for Mexican sugar or to 
submit to dispute settlement procedures unde r the NAFTA regarding these obligations.384  M e x i c o  
also speaks of the measures as intended to rebalancin g its market so that Mexican surplus sugar that 
could have been exported to the United States can be sold locally.385  While acknowledging that there 
are no WTO or GATT precedents to support an interp retation that Article XX(d) would justify such 
measures, Mexico argues that there are none that deny it.386 
8.171  The United States responds that Article XX(d) does not provide an exception for measures to 
secure compliance with obligations of a WTO Member  under another international agreement.  In the 
first place, the United States argues that obligations under an international agreement are not covered 
by the expression "laws or regulations".387  According to the United States, the ordinary meaning of 
the terms "laws or regulations" encompasses only the domestic laws or regulations of a government; it 
does not include obligations under an internationa l agreement, which have a different meaning.388  
The United States submits that such interpretation of the ordinary meaning of "laws or regulations" is 
supported by the context in which the terms appear  – namely, Article XX of the GATT and more 
                                                      
381 (footnote original)  Appellate Body Report, United States – Gasoline , supra , footnote 98,  pp. 22-23;   
Appellate Body Report, United States – Measure Affecting Imports of Woven Wool Shirts and Blouses from 
India , WT/DS33/AB/R, adopted 23 May 1997,  pp. 14-16;  Panel report, United States – Section 337 , supra , 
footnote 69, para. 5.27. 
382 Appellate Body Report on Korea – Various Measures on Beef, para. 157.  See also, Appellate Body 
Report on US – Gambling , para. 295. 
383 Mexico's first written submission, para. 118. 
384 Written version of Mexico's oral statement during first substantive meeting of the Panel with the 
parties, para. 45.  Written version of Mexico's oral st atement during second substantive meeting of the Panel 
with the parties, para. 36.  Mexico's response to Panel question No. 87. 
385 Mexico's first written submission, para. 84. 
386 Mexico's response to Panel question No. 25. 
387 United States second written submission, paras. 2 and 37. 
388 United States second written submission, para. 43.  United States response to Panel question No. 30, 
para. 71.  WT/DS308/R 
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 broadly the GATT and the WTO Agreement as a whole.389  In its opinion, Mexico's interpretation 
would allow any WTO Member to invoke Article XX(d ) as a justification for actions depriving other 
Members of their rights under the GATT to the extent  needed to "secure compliance" with any other 
international agreement.390 
8.172  The United States further argues that, even if "l aws or regulations" could be read to include 
obligations owed by one WTO Member to another under an international agreement, Mexico's tax 
measures are not designed to "secure compliance" within the meaning of Article XX(d) of the GATT 1994.  In this regard, Mexico's position presupposes th at the United States is not in compliance with 
its NAFTA obligations, a matter that has not been pr oved by Mexico, that is currently being disputed 
in the NAFTA forum and that would anyhow be outs ide the Panel's terms of reference.  The United 
States adds that Mexico has not explained how its tax measures are designed to secure compliance by 
the United States, considering that the measures a pply to soft drinks and syrups and non-cane sugar 
sweeteners imported from any WTO Member, and not just those from the United States.  Rather, in its 
opinion, those taxes protect Mexico's own cane sugar industry.
391 
8.173  The Panel commences its analysis of the issue by recalling that, in order to be justified by 
Article XX(d), a measure must be "necessary to secure  compliance with laws or regulations that are 
not inconsistent with the provisions of the GATT 1994".392 
8.174  The word "compliance" may be defined as "the action of complying with a request, 
command, etc.", while in that sense to "compl y" with is to "act in accordance with".393  In turn, to 
"secure" may be defined as to "make (something) certa in or dependable.  Now [especially] ensure (a 
situation, outcome, result, etc.)".394 
8.175  The context in which the expression is used makes clear that "to secure compliance" is to be 
read as meaning to enforce compliance.  Firstly, the provision is addressing compliance with "laws or 
regulations", and these characteristically concern oblig ations rather than requests, and compliance is 
secured by enforcement through the use of force by the authorities, if n ecessary.  Secondly, the 
examples of measures that are given in the latter part  of paragraph (d) all concern that concept (the 
terms used in these examples are "enforcement"  (twice), "protection", and "prevention").395 
8.176  This interpretation is confir med by consideration of the travaux préparatoires  of GATT 1947.  
The strong language used in the phrase "to secure co mpliance" differs from that contained in early 
drafts of the Charter for an International Trade Organization (ITO), a weaker "to induce 
compliance".396  There is also evidence that negotiators we re aware of the issue of countermeasures.  
During the negotiations on the ITO Charter, India proposed the inclusion (in the provision that would 
be the basis for Article XX of the GATT) of a pa ragraph that would allow a country "temporarily to 
                                                      
389 United States second written submission, paras. 44 -46.  United States response to Panel question 
No. 30, paras. 72-74. 
390 United States second written submission, para. 48. 
391 United States second written submission, paras. 56-59. 
392 See, for example, GATT Panel Report on EEC – Parts and Components , para. 5.14. 
393 The New Shorter Oxford English Dictionary  (Clarendon Press, 1993), Vol. I, p. 461. 
394 Ibid., Vol. II, p. 2754. 
395 Paragraph (d) illustrates the measures that may be covered by the provision by citing measures such 
as those "relating to customs enfo rcement, the enforcement of monopolies operated under paragraph 4 of 
Article II and Article XVII, the protection of patent s, trade marks and copyright s, and the prevention of 
deceptive practices". 
396 "Preparatory Committee of the International Co nference on Trade and Employment, Committee II, 
Report of the Technical Sub-Committee", Doc. E/PC/T/C.II/54/rev.1 (28 November 1946), p. 37.  See also, Panel Report on EEC – Parts and Components , para. 5.16.  Suggested Charter for an International Trade 
Organization of the United Nations  (United States Department of State, September 1946), Article 32, p. 24. WT/DS308/R 
Page 150  
 
 discriminate against the trade of another Member when  this is the only effective measure open to it to 
retaliate against discrimination practised by that  Member in matters outside the purview of the 
[International Trade] Organization, pending a se ttlement of the issue through the United Nations".
397  
The proposal was not accepted.398 
8.177  The interpretation is also confirmed by the Appellate Body's use of the expression 
"enforcement instrument" when referring to measures covere d by paragraph (d).399  Indeed, Mexico 
has also referred to measures "designed as an en forcement instrument", when referring to the 
measures that would be covered by paragraph (d).400 
8.178  The identification of the phrase "to secure comp liance" with the notion of enforcement has 
important implications for the arguments presented by Mexico.  The context of Mexico's action is 
essentially international.  Countermeasures have an intrinsic inter-state character, and there is no 
concept of private action against a state being justifiable on this basis.  On the other hand, the notion of enforcement contains a concept of action within a hierarchical structure that  is associated with the 
relation between the state and its subjects, and whic h is almost entirely absent from international law 
(action under Chapter VII of the United Nations Charter is arguably an exception, but it has no 
relevance in the present dispute
401).  The possibility for states to take  countermeasures, that is to try by 
their own actions to persuade other states to resp ect their obligations, is itself an acknowledgement of 
the absence of any international body with enforcemen t powers.  In contrast to this, the capacity to 
enforce laws and regulations through the use of coerci on, if necessary, is perhaps the most important 
of the features that distinguish states from other kinds of bodies. 
8.179  The examples provided in Article XX(d) serve to  reinforce the conclusion that this provision 
is concerned with action at a domestic rather than international level.  Customs, monopolies, patents, 
trade marks and copyrights, and deceptive practices  are in essence matters that are regulated under 
domestic law.  It can be argued that the topics covered by these examples are all capable of being the subjects of international agreements.
402  However, the same point could be made of almost any aspect 
of national law, and the argument does not detract from the basic point that these examples essentially 
concern aspects of domestic law which make use of systems of enforcement.  Thus, there could be 
domestic customs laws without international agr eements, but international agreements on customs 
without domestic law would be meaningless.  Of course, these topics are listed in Article XX(d) 
merely as examples, so they cannot of themselves be taken as providing c onclusive support for the 
Panel's conclusions.  Nevertheless, they provide a si gnificant indicator of the intended interpretation. 
8.180  The Panel will return to the notion of enforcem ent in its discussion of "laws or regulations"403, 
but before leaving the current topic it is worth noting that the Draft Articles on Responsibility of States 
for internationally wrongful acts adopted by the International Law Commission404 do not speak of 
enforcement when addressing the use of countermeas ures.  Rather, paragraph 1 of Article 49 states 
that "[a]n injured State may only take countermeasu res against a State which is responsible for an 
                                                      
397 Doc. E/PC/T/180 (19 August 1947), p. 97. 
398 See, "Havana Charter for an International Trade Organization", United Nations Conference on 
Trade and Employment, Final Act and Related Documents (Lake Success, New York, April 1948), pp. 33-34. 
399 Appellate Body Report on Korea – Various Measures on Beef , paras.  162-163.  See also, Panel 
Report on US – Gasoline , para. 6.33.  See also, GATT Panel Report on EEC – Parts and Components , 
paras. 5.17-5.18. 
400 Mexico's response to Panel question No. 24. 
401 A special exception for action of this kind  is created by Article XXI(c) of GATT 1994. 
402 Written version of Mexico's oral statement during first substantive meeting of the Panel with the 
parties, para. 42.  See also, Mexico's response to Panel question No. 67. 
403 See para. 8.199 below. 
404 "Draft Articles on Responsibility of States for internationally wrongful acts" adopted by the 
International Law Commission at its fifty-third session (2001).  WT/DS308/R 
 Page 151 
 
 
 internationally wrongful act in order to induce that State to comply with its obligations under Part 
Two."  Nor is the notion of enforcement used in the Commentary on the articl es, except in regard to 
procedures within the European Union, which because of its unique structures and procedures is 
obviously a special case.405 
8.181  For these reasons the Panel concludes that the phrase "to secure compliance" in Article XX(d) 
does not apply to measures taken by a Member in order to induce another Member to comply with 
obligations owed to it under a non-WTO treaty. 
(ii) Whether Mexico's tax measures are designed to secure compliance 
8.182  In Korea – Various Measures on Beef , the Appellate Body said that: 
"For a measure, otherwise inconsistent with  GATT 1994, to be justified provisionally 
under paragraph (d) of Article XX, two elemen ts must be shown.  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."
406 
8.183  In that case , the Appellate Body was confirming the decision of the panel which said that: 
"… the dual retail system was put in place, at least in part, in order to secure 
compliance with the Korean legislation agains t deceptive practices to the extent that it 
serves to prevent acts inconsistent with the Unfair Competition Act.   First, the system 
was established at the time when, as stated by Korea and not refuted by the Complaining parties, acts of misrepresenta tion were widespread in the beef sector.  
Second, it must be conceded that the dua l retail system does appear to reduce the 
opportunities and thus the temptations for but chers to misrepresent foreign beef for 
domestic beef, when compared with the situation where all domestic and imported 
beef could officially be supplied to the same shop."
407 
8.184  The question of whether the measure identified by Mexico is designed  to secure compliance 
is therefore one that must be addressed by the Panel.   The considerations that influenced the Panel in 
reaching a conclusion regarding the phrase "to secure compliance"408 are also relevant to answering 
this question. 
8.185  The panel additionally notes that, when enforcem ent action is taken within a Member's legal 
system there will normally be no doubt, provided the action is pointed at the right target, that it will 
achieve that target.  At least, there is no systemic  problem in arriving at that conclusion, because the 
State by its very nature is usually in a position to achieve that enforcement, through the use of 
coercion, if necessary.  However, the situation is  quite different when one considers international 
relations.  Mexico argues that its tax measures are designed to secure compliance by the United States 
with obligations Mexico considers the United Stat es to have under the NAFTA.  Regardless of the 
issue of Mexico's actual intentions regarding its measures, the effectiveness of those measures in 
achieving their stated goal – that of bringing about a change in the behaviour of the United States – 
seems to the Panel to be inescapably uncertain. 
                                                      
405 "Commentaries to the draft Articles on Responsibility of States for internationally wrongful acts" 
adopted by the International Law Commission at its fifty-third session (2001), p. 337. 
406 Appellate Body Report on Korea – Various Measures on Beef , para. 157.  See also, Appellate Body 
Report on Dominican Republic – Import and Sales of Cigarettes , para. 65. 
407 Panel Report on Korea – Various Measures on Beef , para. 658. 
408 See para. 8.175 above. WT/DS308/R 
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 8.186  In this regard, Mexico has not explaine d how its measures will make any significant 
contribution to securing compliance on the part of the United States, and much less how they will 
perforce bring about such a change of conduct.  Me xico has claimed only that the measures have had 
the effect of "attracting the attention" of the United States.
409  Attracting the attention of a Member is 
not equivalent to securing compliance of that Member with a law or regulation.  Even conceding that 
the measures may have "attracted the attention of the United States", at most this would imply the 
beginning of a process between the parties with uncertain results.  The Panel mentions these 
considerations principally in or der to reinforce its conclusion th at the outcome of international 
countermeasures, such as those adopted by Mexico, is  inherently unpredictable, and that they are 
therefore not eligible to be considered as measu res "to secure compliance" within the meaning of 
Article XX(d).  However, even if the assumption were  to be made in the abstract that international 
countermeasures are potentially capable of qualifying as measures designed to secure compliance, the Panel's conclusion would be that Mexico has not es tablished that its measures contribute to securing 
compliance in the circumstances of this case. 
8.187  Confirmation of the view that the uncertain outcome of international countermeasures is a 
reason for disqualifying them as measures eligible for consideration under Article XX(d) is to be 
found in the Appellate Body Report in the US – Gambling  case.  When considering whether a 
measure could be considered to be "necessary" , the Appellate Body dismissed the idea that 
consultations between the Members concerned coul d constitute a reasonably available alternative: 
"Engaging in consultations with Antigua, with a view to arriving at a negotiated 
settlement that achieves the same obj ectives as the challenged United States' 
measures, was not an appropriate alternative for the Panel to consider because 
consultations are by definition a process, the results of which are uncertain and therefore not capable of comparison with  the measures at issue in this case."
410 
8.188  As indicated by the Appellate Body, measures th at are of uncertain outcome do not qualify as 
reasonably available alternatives when consider ing whether a measure is necessary to secure 
compliance with a law or regulation.  Following a similar rationale, in order to qualify as a measure 
"to secure compliance", it would seem that there should be a degree of certainty in the results that may be achieved through the measure.  Such certainty is inherently absent in the case of international 
countermeasures. 
8.189  Finally, it should be noted that, as regards the design of the measures, the Panel has already 
determined that, by their design and operation, th e challenged tax measures  afford protection to 
Mexican domestic production.
411  The measures apply to imported soft drinks and syrups, and 
particularly to those produced with non-cane suga r sweeteners, from all origins.  Even Mexico 
acknowledges that its measures are intended to rebalan ce its sugar market, so that surplus sugar that 
could otherwise have been exported to the Unite d States could be sold in the Mexican domestic 
market.412  These considerations serve to further underm ine Mexico's claim that, in the circumstances 
of this case, its measures are designed to secure compliance with laws or regulations. 
8.190  For these reasons, the Panel is not convinced by  Mexico's argument that the challenged tax 
measures are designed to secure compliance by the United States with laws or regulations. 
                                                      
409 Mexico's second written submission, para. 83. 
410 Appellate Body Report on US – Gambling , para. 317. 
411 See para. 8.86 above. 
412 Mexico's first written submission, para. 84.  WT/DS308/R 
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 (iii) Laws and regulations covered by paragraph (d) of Article XX 
8.191  As noted above, the United States argues that the phrase "laws or regulations" in paragraph 
(d) covers only internal or domestic laws and regulations, and does not extend to international 
obligations owed to Mexico by other countries unde r the NAFTA, and other inte rnational agreements.  
It contends that both the ordinary meaning of the te rms "laws or regulations", as well as the context in 
which the terms appear – namely, Article XX of the GATT and more broadly the GATT and the 
WTO Agreements – support its interpretation that th ey are limited to domestic laws or regulations.413  
In the view of the United States, Mexico has not established that the phrase "laws or regulations" as 
used in Article XX(d) means or includes "internatio nal law" or obligations owed to Mexico under an 
international agreement such as the NAFTA.414 
8.192  Mexico responds that international agreements that are incorporated into domestic law, and 
the legal obligations arising from those agreem ents, would be covered by the phrase "laws or 
regulations".  It argues that "international law is no less law than domestic law".  In its opinion, "[t]he 
mere characterization of a rule as an obligation un der an international agreement does not mean that 
such a rule is not also a 'law' w ithin the meaning of Article XX(d)."415 
8.193  The Panel commences its examination of the phrase "laws or regulations" by noting that 
"law" can be defined as a "rule of conduct imposed by secular authority" or as "[a]ny of the body of 
individual rules in force in a State or community"416, while "regulation" can be defined as a "rule 
prescribed for controlling some matter, or for the regulating of conduct".417  However, these 
definitions are too general to resolve the questi on of the meaning of these terms in Article XX(d),418 
and in particular whether, as argued by Mexico, th ey include the rules of international agreements, 
such as those of the NAFTA.  Nor does the Panel fi nd guidance in this regard from the use of the 
plural form of the word "laws" in paragraph (d); nor from the different use of the word in the Spanish 
and French text of the GATT 1994 and the DSU.419  For the answer to this question it is necessary to 
look at the context in which the words occur.  Th is context includes the other terms of paragraph (d) 
as well as the other provisions of GATT 1994, and indeed of the WTO covered agreements. 
8.194  The phrase "laws or regulations" is most clo sely linked with the opening words of the 
paragraph: "to secure compliance with".  Furthermor e, in looking for the meaning of these words, the 
                                                      
413 Written version of United States' oral statement during first substantive meeting of the Panel with 
the parties, para. 9.  United States second written submission, paras. 37 and 41-55.  United States response to 
Panel question No. 30, paras. 72-78. 
414 United States second written submission, paras. 42-55.  Written version of United States' oral 
statement during second substantive meeting of the Panel with the parties, paras. 4-12. 
415 Mexico's first written submission, para.118.  Written version of Mexico's oral statement during first 
substantive meeting of the Panel with the parties, paras. 41-44.  Mexico's second written submission, 
paras. 66-73. 
416 The New Shorter Oxford English Dictionary  (Clarendon Press, 1993), Vol. I, pp. 1544-1545. 
417 Ibid., Vol. II, p. 2530. 
418 See also United States response to  Panel question No. 30, para. 71. 
419 The United States argues that there is a text ual difference between "laws or regulations" and 
"international law".  In support for its argument, it refers to the fact that one expressi on uses the singular "law" 
while the other uses the plural "laws".  In its view, while it is possible to speak of international "law" in the same 
sense as to speak about "common law" or the "law of the sea", international law is not ordinarily used in the 
plural.  It also argues that the word "law", as used in the expressions "public international law" (in Article 3.2 of 
the DSU) and "laws or regulations" (in Article XX(d) of the GATT 1994) has been translated differently in the Spanish and French texts of the agreements.  See, Un ited States second written submission, para. 51 and 
footnote 72.  Written version of United States' oral stat ement during second substantive meeting of the Panel 
with the parties, para. 9.  The Panel notes that the singular form of the word "law" can also be used in reference to any particular body of rules in force in a community, such as "criminal law", "commercial law" or 
"administrative law", without regard to whether it is domestic or international. WT/DS308/R 
Page 154  
 
 Panel found it necessary to look at the whole expression "to secure compliance with laws or 
regulations".  It therefore follows logically that th e conclusions reached in that analysis must also 
apply in the present context.  Consequently, the conclusion that these words refer to enforcement 
action within a particular domestic legal system, and that they do not extend to international action of 
the type taken by Mexico, necessarily applies to both parts of this expression. 
8.195  Both parties have sought to invoke the use of th e terms "laws" and "re gulations" elsewhere in 
the GATT 1994 and in other WTO agreements in  support of their respective suggested 
interpretations.
420  The use of these terms in the text of the GATT 1994421 and the WTO Agreement422 
suggests that such terms relate principally to domest ic rules issued by the authorities of Members (or 
of GATT contracting parties) and not to obligati ons under international agreements.  At the same 
time, it should be noted that in a limited number of instances, the WTO Agreement refers to 
"regulations" adopted by the WTO Ministerial Conference423, and to "financial regulations" adopted 
by the General Council424, suggesting that the term "regulation" may also be associated to acts 
adopted by international bodies.  The Panel does not  find that this last consideration gives any 
decisive indication of the meaning of "laws or re gulations" in Article XX(d) , and in particular does 
not detract from the conclusion it has reached by co nsidering the immediate context of the phrase. 
8.196  The Panel does not see that the issue of the po ssible direct effect of an international 
agreement in domestic law is relevant in the present  context.  Whether or not an agreement has that 
effect, it retains its international  character, and it is that character and the international character of 
the obligations that arise from it which lead to the possible use of countermeasures to encourage 
respect for those obligations.  Thus, even if some  of the rules of the ag reement become part of 
national law as a result of a doctrine of direct effe ct, it remains the case that it is the international 
dimension of the agreement's rules that needs to be considered when interpreting the phrase "laws or 
regulations". 
8.197  Finally, the Panel observes that, even if it were to assume that the expression "laws or 
regulations" in Article XX(d) could include intern ational agreements such as the NAFTA, it would in 
any event conclude that, on the facts of the case, be cause of the uncertainty of their consequences, the 
challenged measures are not designed "to secure comp liance with laws or regulations which are not 
inconsistent with the provisions" of GATT 1994. 
                                                      
420 United States response to Panel question No. 30, paras. 72-74.  United States second written 
submission, paras. 37 and 44-46.  Wr itten version of United States' oral statement during second substantive 
meeting of the Panel with the parties, paras. 6 and 9.  Written version of Mexico's oral statement during second 
substantive meeting of the Panel with the parties, pa ra. 77.  Mexico's response to Panel question No. 84. 
421 See, for example, Article II:5 ("tariff laws of such  contracting party"); Artic le III:1 ("internal taxes 
and other internal charges, and laws, regulations and requirements"); Articles III:4 and III:8 ("laws, regulations 
and requirements"); Article V:3 ("applicable customs la ws and regulations"); Article  VII:1 (contracting party's 
"laws or regulations relating to value for customs purposes"); Article VIII:2 (contracting party's "laws and regulations"); Article IX:2 ("laws an d regulations relating to marks of origin"); Article IX:4 ("laws and 
regulations of contracting parties relating to the marking of imported products"); Article X:1 ("Laws, 
regulations, judicial decisions and administrative rulings of general application, made effective by any contracting party "); and Article X: 3(a) (contracting party's "laws, regulations, decisions and rulings"). 
422 See Article XVI:4 of the WTO Agreement (Mem ber's "laws, regulations and administrative 
procedures"). 
423 See, for example, Articles VI:2 and VI:3 of the WTO Agreement. 
424 Ibid., Articles VII:2, VII:3 and VII:4.  WT/DS308/R 
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 (iv) Conclusion 
8.198  For the reasons indicated above, the Panel concl udes that Mexico has not demonstrated that 
the challenged measures are designed "to secure comp liance with laws or regulations", within the 
meaning of Article XX(d) of the GATT 1994. 
(c) Necessary to secure compliance with laws or regulations 
8.199  Mexico argues that the challenged tax measur es are "necessary" to secure compliance by the 
United States with its own obligations under the NA FTA, a law that is not inconsistent with the 
provisions of the GATT 1994.425 
8.200  Mexico argues that the measures at issue have  "to a large extent" contributed to the end 
pursued, that is, securing the United States' complian ce with the NAFTA.  In its opinion, the evidence 
reveals that the adoption of the IEPS tax created  a "desired dynamic to secure the United States' 
compliance or otherwise arrive at a mutually satisfact ory resolution of the dispute".  Mexico adds that 
the measures have had the effect of "attr acting the attention" of the United States.426  As evidence to 
support its assertion, Mexico has presented a newspape r article on the effect of the IEPS tax in the 
bilateral sweeteners dispute between Mexico and the United States under the NAFTA.  In the article, 
the president of the Mexican National Chamber of  the Sugar and Alcohol Industries is quoted as 
saying: "Thanks to the tax, they [American suga r and corn growers, sugar refiners, and HFCS 
producers] are sitting at the negotiating table…Wit hout the tax, they would not even answer the 
telephone."427 
8.201  The United States responds that, even assuming arguendo that Mexico's tax measures 
contributed to NAFTA compliance, they are not "necessary" to secure such compliance as required by 
Article XX(d).428 
8.202  Having found that Mexico, as the responding pa rty invoking the affirmative defence, has not 
established that the challenged measures are designed to secure compliance with laws or regulations, 
under the terms of Article XX(d) of the GATT 1994, the Panel concludes that it does not need to 
determine whether such measures are "necessary" to secure such compliance by the United States.  In 
some disputes, where a party fails to establish one of th e elements of its case, the panel, with a view to 
assisting the Appellate Body may nevertheless procee d to rule on the remaining elements.  However, 
such an approach is not possible in the present case because the question of whether a measure is 
"necessary" cannot be examined without taking into account the particular nature of that measure, 
especially the way in which it secures compliance with  laws or regulations.  In other words, the 
elements that Mexico must establish are so closel y related that the Panel, having found that the 
measures do not meet the criterion that they are designed  "to secure compliance", cannot 
meaningfully provide any additional analysis about whether the measures are necessary  "to secure 
compliance". 
(d) Chapeau  of Article XX 
8.203  As Mexico has failed to justify provisionally the challenged measures, it is not necessary for 
the Panel to consider whether the measures are consistent with the chapeau  of Article XX. 
                                                      
425 Mexico's first written submission, paras. 117 and 123-126. 
426 Mexico's second written submission, para. 83. 
427 Mexico's second written submission, para. 83.  Exhibit MEX-8. 
428 United States second written submission, paras. 60-67. WT/DS308/R 
Page 156  
 
 5. Conclusion 
8.204  For the reasons given above, the Panel concl udes that Mexico has not established that the 
challenged measures are justified under Article XX of the GATT 1994. 
I. A
DDITIONAL REQUESTS BY MEXICO  
1. Mexico's additional requests 
8.205  Mexico requests that, if the Panel exercises its jurisdiction, it should refrain from making 
certain findings that could jeopardize Mexico's abil ity to mount a proper defence in international 
proceedings that are taking place in other fora.  More specifically, Mexico requests that the Panel 
recommend that the parties (Mexico and the United Stat es) take steps to resolve their sweeteners trade 
dispute within the NAFTA framework.  Mexico also asks the Panel to employ particular care in terms 
of how it formulates its findings and recommendations, making clear that its findings apply solely to 
the parties' respective rights and obligations unde r the WTO agreements and cannot be taken to pre-
judge legal rights under other rules of international law.429  In response to questions from the Panel, 
Mexico has clarified that the intern ational proceedings that it is refe rring to, are three investor – State 
disputes under Chapter Eleven of the NAFTA, in which claims for monetary damages have been 
presented against Mexico.430 
8.206  After being informed of the Panel's prelimin ary ruling regarding its decision to exercise 
jurisdiction, Mexico has reiterated its view that the present dispute is one more properly dealt with 
under the NAFTA and has repeated its argument that  the Panel has broad powers of discretion under 
the GATT and the DSU to decide whether or not to issue findings in a matter that has been brought 
before it.  In Mexico's opinion, this Panel does not have a legal obligation to issue findings on the 
claims raised by the United States.  The relevant provisions in GATT and the DSU do not say that a 
panel must issue findings of breach on the merits of a claim.431 
8.207  Mexico states that neither Article XXII nor Ar ticle XXIII of GATT establish an obligation for 
panels to issue findings.  In particular, Artic le XXIII:2 only provides that a matter (including an 
alleged failure of a Member to carry out its obliga tions or a Member's application of a measure which 
conflicts with the agreements) may be referr ed to the CONTRACTING PARTIES.  Upon such 
referral, the CONTRACTING PARTIES shall promp tly investigate the matter and shall make 
appropriate recommendations to the c ontracting parties which they consid er to be concerned, or give a 
ruling on the matter, as appropriate.  When deali ng with a dispute, CONTRACTING PARTIES would 
thus have two options, "as appropriate":  ( i) to make recommendations to the contracting parties 
concerned; or, ( ii) to issue a ruling in the matter.  Articles XXII and XXIII of the GATT would confer 
this discretion upon the CONTRACTING PARTIES (and upon panels acting at their behest).  Panels 
would have the power to determine what is appropriate in the circumstances of each particular case, even in situations where a breach of the agreements was alleged. 
8.208  Mexico argues further that, when the WTO was created, this flexibility was preserved.  The 
drafters of the WTO's dispute settlement system  did not amend GATT Articles XXII and XXIII when 
GATT 1947 became GATT 1994.  Moreover, in Article 3 of the DSU, the Members stated that they 
affirmed their adherence to the principles for th e management of disputes heretofore applied under 
Articles XXII and XXIII of GATT 1947, and the ru les and procedures as further elaborated and 
modified herein.  This flexibility is further illustrate d by Article 3.7 of the DSU:  "... The aim of the 
                                                     
 
429 Mexico's first written submission, paras. 14, 104 and 110. 
430 Mexico's response to Panel question No. 36. 
431 Mexico's second written submission, paras. 48-64.  Written version of Mexico's oral statement 
during second substantive meeting of the Panel with the parties, paras. 43-52.  WT/DS308/R 
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 dispute settlement mechanism is to secure a positiv e solution to a dispute. A solution mutually 
acceptable to the parties to a dispute and consistent  with the covered agreements is clearly to be 
preferred".  The flexibility is further preserved in the same paragraph: "In the absence of a mutually 
agreed solution, the first objective of the disput e settlement mechanism is usually to secure the 
withdrawal of the measures concerned if these are f ound to be inconsistent with the provisions of any 
of the covered agreements…"  The inclusion of th e qualifying word "usually" was intentional, in case 
of unusual circumstances in which the withdrawal  of the measures concerned would not result in a 
positive solution to a dispute.  It is thus open to panels to make other findings in order to secure a 
positive solution to a dispute.  Article 11 of the DSU clarifies that it is within the Panel's discretion, 
based on an objective assessment of the matter before  it, to recommend what steps the parties should 
take to "secure a positive solution to the dispute".  This flexibility is confirmed by the terms of 
reference of this Panel:  "To examine, in the light of the relevant provisions of the covered agreements 
cited by the United States in document WT/DS308/ 4, the matter referred to the DSB by the United 
States in that document, and to make such  findings as will assist the DSB in making the 
recommendations or in giving the rulings provided for in those agreements". 
8.209  Mexico argues that, in this case, issuing find ings would not secure a positive solution to the 
dispute.  Findings would not lead to a mutually acc eptable solution to the parties if Mexico continues 
to be blocked in having its grievance under the NAFTA resolved.  The Panel should aim to treat both 
parties fairly. 
8.210  Mexico requests that the Panel take partic ular care in formulating its findings and 
recommendations so as not to suggest that it is in terpreting the two parties' rights and obligations 
under the NAFTA.432 
8.211  Mexico additionally requests the Panel to ma ke the following determinations of fact, 
whatever its resolution on the merits of this disput e may be.  First, that Mexico and the United States 
have negotiated a bilateral preferential trade regime  for sweeteners, which in cludes HFCS and sugar, 
products that compete in certain market segments.  Second, that a legitimate broader dispute exists 
between Mexico and the United States regarding ac cess of Mexican sugar to the US market.  Third, 
that Mexico has exhausted all efforts to resolve that dispute through diplom atic channels, bilateral 
consultations and negotiations, a nd through NAFTA's Chapter Twenty dispute settlement mechanism. 
Fourth, that, notwithstanding the fact that Mexico  requested the establishment of a NAFTA arbitral 
panel in 2000, to date the United States has not a ppointed panellists and has thus frustrated Mexico's 
attempt to resolve its grievan ces under the NAFTA.  Fifth, that the tax measures at issue are a 
response to the United States' refusal to submit to  NAFTA's dispute settlement; a response that seeks 
to induce the United States to do so, as well as to rebalance Mexico's market which has been affected 
by the sugar production surplus resulting in part from United States' HFCS imports and HFCS production from corn imported from the United States.  Sixth, that the United States has stated that 
under international law it can validly  adopt counter-measures when another State refuses to submit to 
dispute settlement mechanisms.
433 
8.212  Finally, Mexico requests the Panel, in the course of its deliberations, to give the fullest weight 
to Mexico's status as a developing country and to the fact that agrarian reform entails a lengthy 
process of adjustment.434 
                                                      
432 Mexico's second written submission, para. 86. 
433 Written version of Mexico's oral statement during second substantive meeting of the Panel with the 
parties, para. 36. 
434 Mexico's first written submission, paras. 105-109, 137 and 139. WT/DS308/R 
Page 158  
 
 2. The United States response 
8.213  The United States responds to Mexico's arguments in this regard, by stating that they are not 
relevant to the resolution of this dispute.  In the United States' opinion, Mexico's assertions that this is 
a NAFTA dispute and that a finding of WTO-inconsis tency could prejudice Mexico's interests in on-
going or future NAFTA proceedings, do not bear on whether Mexico's tax measures are consistent 
with Article III of the GATT 1994 or justified under Ar ticle XX(d).  They are, therefore, not issues 
that this Panel needs to consider further.  The Un ited States adds that Mexico is incorrect in arguing 
that the Panel need not limit its recommendations in this dispute to a request that Mexico bring its 
WTO-inconsistent tax measures into complianc e.  Panel recommendations are limited to 
recommendations that WTO-inconsistent measures be brought into conformity with the covered 
agreements.  This limitation is explicitly provided for in Article 19.1 of the DSU.
435 
8.214  Regarding Mexico's request that the Panel make  certain determinations of fact, the United 
States responds that most of the facts identified by Mexico involve determina tions of contested legal 
issues.  The United States also disputes many of the facts identified by Mexico.  It additionally argues 
that these determinations do not concern facts that th is Panel needs to determine in order to fulfil its 
mandate in this dispute, which concerns the cons istency of Mexico's tax measures with Mexico's 
WTO obligations and not the United States' acti ons under the NAFTA.  The United States concludes 
that the Panel should not agree to make the determinations of fact requested by Mexico.436 
3. Panel's analysis 
(a) The Panel's "discretion" 
8.215  Mexico has made a variety of requests regard ing the findings and recommendations that the 
Panel might make.  Most of these requests rest on the premise that the Panel has discretion as to what 
it may do in this regard, in support of which Mexico  has made a number of arguments.  The Panel will 
commence its analysis by examining these.  In essen ce, Mexico argues that the Panel has discretion to 
depart from the procedure stated in Article 19.1 of the DSU: 
"Where a panel or the Appellate Body concl udes that a measure is inconsistent with a 
covered agreement, it shall recommend that the Member concerned bring the measure 
into conformity with that agreement.  In  addition to its recommendations, the panel or 
Appellate Body may suggest ways in which the Member concerned could implement the recommendations." (Footnotes omitted.) 
8.216  In support of its arguments, Mexico h as referred to Article 3.1 of the DSU
437, which states 
that: 
"Members affirm their adherence to the principles for the management of disputes 
heretofore applied under Articles XXII a nd XXIII of GATT 1947, and the rules and 
procedures as further elaborated and modified herein." 
8.217  Mexico seems to invoke Article 3.1 of the DSU merely in order to address the text of Articles 
XXII and XXIII of the GATT.  Since the latter provisions are explicitly included in WTO law as part 
of the GATT 1994, there is no need to invoke Article  3.1 of the DSU for this purpose.  Mexico has 
not referred to any other matters that woul d require the invocation of Article 3.1. 
                                                      
435 Written version of United States oral statement dur ing second substantive meeting of the Panel with 
the parties, paras. 19 and 26. 
436 United States response to Panel question No. 73, paras. 61-67. 
437 Mexico's second written submission, para. 59.  WT/DS308/R 
 Page 159 
 
 
 8.218  Despite Mexico's argument438, the Panel does not find anything in Article XXII of the GATT 
which suggests that panels have the discretion not to issue rulings and recommendations in disputes 
where they have found measures to be inconsistent with WTO obligations. 
8.219  As to Article XXIII of the GATT, Mexico point s to several features in Article XXIII:2 in 
support of its contentions.  This paragr aph states in its relevant parts that: 
"If no satisfactory adjustment is effected between the contracting parties concerned 
within a reasonable time, or if the difficulty is of the type described in paragraph 1 ( c) 
of this Article, the matter may be refe rred to the CONTRACTING PARTIES.  The 
CONTRACTING PARTIES shall promptly inves tigate any matter so referred to them 
and shall make appropriate recommendations  to the contracting parties which they 
consider to be concerned, or give a ruling on the matter, as appropriate..."439 
8.220  Mexico claims that the use of the phrase "as a ppropriate" gives discretion to panels whether 
or not to issue rulings.  In the first place, it is clear  that, even if such discretion exists, it is given to 
CONTRACTING PARTIES (and their e quivalent under the WTO, the DSB), and not to panels.  More 
generally, it must be borne in mind that the use of panels in dispute settlement was not specifically 
envisaged in the text of the GATT adopted in 1947, but was developed in the following years.  The 
topic was the subject of a number of decisions of the CONTRACTING PARTIES during this period.
440  Many of the elements of these decisions have  now been absorbed into the DSU.  Terms in 
Article XXIII:2 should therefore not be read in is olation.  In particular, the Panel regards it as 
significant that none of the DSU provisions touching  on the powers of panels in regard to making 
recommendations qualifies those powers with the phrase "as appropriate".  The relevant DSU 
provisions are considered below. 
8.221  Mexico also claims support for its arguments fro m the use of the word "or" that connects the 
two options open to the CONTRACTING PARTIES:   to make recommendations, and to give a 
ruling.441  The Panel is not aware of any authoritative inte rpretation of the term "ruling".  However, it 
does not find that in this context the word "or" in dicates that the two options are mutually exclusive.  
The term most likely includes a panel's conclu sion that the respondent Member's measures are 
inconsistent with particular WTO obligations.  Su ch a conclusion would invariably be accompanied 
by a recommendation.  Consequently, whether in relation to the Panel in making proposals to the 
DSB, or to the DSB itself, this use of the word me rely serves to present a list of the actions that may 
be taken.  It does not indicate that the Panel has the flexibility that is claimed by Mexico. 
8.222  Apart from these specific points, Mexico argu es that Articles XXII and XXIII of the GATT 
confer "discretion upon the Contracting Par ties (and panels acting at their behest)".442  The Panel does 
not see how these provisions can in general be  read as giving discretion to either the 
CONTRACTING PARTIES or panels. 
8.223  Mexico seeks support for its position from severa l provisions of the DSU.  The Panel will 
examine these in turn in order to determine the present legal situation. 
                                                      
438 Mexico's second written submission, para. 55. 
439 Under the system of the GATT 1947, the ex pression "CONTRACTING PARTIES" in capital 
letters, meant the Contracting Parties "acting jointly".  GATT, Article XXV:1. 
440 See, for example, Understanding Regarding Notification, Consultation, Dispute Settlement and 
Surveillance (1979), BISD 26S/210.  Doc. L/4907.  See also, Decision on Improvements to the GATT Dispute 
Settlement Rules and Procedures (1989), Doc.  L/6489. 
441 Mexico's second written submission, para. 57. 
442 Mexico's second written submission, para. 58.  Wr itten version of Mexico's oral statement during 
second substantive meeting of the Panel with the parties, para. 48. WT/DS308/R 
Page 160  
 
 8.224  Mexico claims that Article 3.7 of the DSU confirms the flexibility accorded to panels.
443  This 
provision states that: 
"Before bringing a case, a Member shall exercise its judgement as to whether action 
under these procedures would be fruitful.  The aim of the dispute settlement mechanism is to secure a positive solution to a dispute.  A solution mutually 
acceptable to the parties to a dispute and c onsistent with the covered agreements is 
clearly to be preferred.  In the absence of a mutually agreed solution, the first 
objective of the dispute settlement mechanism is usually to secure the withdrawal of 
the measures concerned if these are found to be inconsistent with the provisions of 
any of the covered agreements.  The provision of compensation should be resorted to 
only if the immediate withdrawal of the measure is impracticable and as a temporary 
measure pending the withdrawal of the measur e which is inconsistent with a covered 
agreement.  The last resort which this  Understanding provides to the Member 
invoking the dispute settlement procedures is the possibility of suspending the application of concessions or other obliga tions under the covered agreements on a 
discriminatory basis vis-à-vis the other Memb er, subject to authorization by the DSB 
of such measures...." 
8.225  Mexico refers in particular to the second and fourth sentences.  Regarding the former, the 
Panel's view is that the statement that "[t]he ai m of the dispute settlement mechanism is to secure a 
positive solution to the dispute" is too general to be set against the precise rules that define the role of 
panels.  Regarding the fourth sentence ("[i]n the absence of a mutually agreed solution, the first 
objective of the dispute settlement mechanism is us ually to secure the withdrawal of the measures 
concerned if these are found to be inconsistent  with the provisions of any of the covered 
agreements"), the Panel notes that it simply d escribes the desired outcome of dispute settlement 
proceedings, when a finding of in consistency has already been made by the DSB and no other 
mutually acceptable solution has been  reached between the parties.  The word "usually" in the phrase 
"is usually to secure the withdrawal of the measur es concerned" does not have the implications given 
to it by Mexico.  This phrase must be read in conj unction with the remainder of the paragraph, which 
addresses the fall-back solutions to be adopted wh en immediate withdrawal of the measure is not 
achieved.  These in effect state what should ha ppen in other-than-usual cases.  Consequently, 
Article 3.7 of the DSU does not confer a gene ral discretion on panels to make any kind of 
recommendations they might think appropriate in a particular case. 
8.226  Mexico has also invoked Article 11 of the DSU in support of its contentions.
444  T h a t  
provision reads: 
"The function of panels is to assist th e DSB in discharging its responsibilities under 
this Understanding and the covered agreements.  Accord ingly, a panel should make 
an objective assessment of the matter before  it, including an objective assessment of 
the facts of the case and the applicability of and conformity with the relevant covered 
agreements, and make such other findi ngs as will assist the DSB in making the 
recommendations or in giving the rulings pr ovided for in the covered agreements.  
Panels should consult regularly with the par ties to the dispute and give them adequate 
opportunity to develop a mutually satisfactory solution." 
8.227  Mexico points to the use of the word "should" ra ther than "shall" as an indication that panels 
have a discretion in these matters.445  It acknowledges that "should" can mean "shall"446, but says that 
                                                      
443 Mexico's second written submission, para. 60. 
444 Mexico's second written submission, para. 50. 
445 Ibid.  WT/DS308/R 
 Page 161 
 
 
 this interpretation cannot be assumed. In fact, the obligatory nature of the panels' duties under 
Article 11 has been repeatedly emphasized by the Appellate Body.447  Indeed, the importance of the 
topics covered by this provision would no t allow for any other interpretation. 
8.228  Mexico has also argued that the terms of refere nce of this Panel confirm the notion that the 
Panel has flexibility to decide whether to issue findi ngs on the claims.  Mexico has recalled the terms 
of reference of this Panel:  "[t]o examine... the ma tter referred to the DSB by the United States... and 
to make such findings as will assist the DSB in making the recommendations or in giving the rulings 
provided for in those agreements" (emphasis added by Mexico).448  The Panel notes that this 
formulation follows the standard terms of reference st ated in Article 7.1 of the DSU, and that in its 
mention of recommendations and rulings it directly reflects the terms of Article XXIII:2 of the GATT, 
which also refers to the making of r ecommendations "or" the giving of a ruling.449  Consequently, the 
explanation that the Panel gave above in order to show that Article XXIII:2 provides no basis for 
Mexico's argument is also applicable in  regard to the terms of reference. 
8.229  Finally, the Panel returns to Article 19.1 of the DSU: 
"Where a panel or the Appellate Body concl udes that a measure is inconsistent with a 
covered agreement, it shall recommend that the Member concerned450 bring the 
measure into conformity with that agreement.451  In addition to its recommendations, 
the panel or Appellate Body may suggest wa ys in which the Member concerned could 
implement the recommendations." 
8.230  While Article 19.1 allows pane ls (and the Appellate Body) to suggest ways in which the 
Member concerned can implement the appropriate recommendations, this provision also confirms the 
Panel's earlier conclusion452 that it is a legal obligation for pane ls (and for the Appellate Body), once 
they have concluded that a measure is inconsistent  with a covered agreement, to recommend that the 
Member concerned bring the measure into conform ity with that agreement.  Since the Panel has 
concluded that it does not have discretion to depart fr om the procedure stated in Article 19.1, there is 
no occasion for it to consider the various ways in wh ich Mexico requested that such discretion should 
be exercised.  Mexico does not request the Panel to  make suggestions of the kind described in the 
second sentence of Article 19.1.  In any event, sinc e Mexico's interest lies in having the Panel issue 
recommendations directed at what the United States should do, such a step would serve no purpose. 
(b) Determinations of fact requested by Mexico 
8.231  As for the factual determinations requested by Mexico, the Panel notes that some of the facts 
included in its request have been taken into account and noted in the findings, to the extent that those 
facts are relevant for the resolution of  the matter put before this Panel. 
                                                                                                                                                                     
446 Mexico cites in its support the Appellate Body Report on Canada – Aircraft , para. 187.  See 
Mexico's second written submission, para. 50. 
447 See, for example, Appellate Body Report on EC – Hormones , para. 133.  See also, Appellate Body 
Report on Korea – Dairy , para. 137. 
448 Mexico's second written submission, para. 63. 
449 See paras. 8.219 to 8.222 above. 
450 (footnote original ) The "Member concerned" is the party to the dispute to which the panel or 
Appellate Body recommendations are directed. 
451 (footnote original ) With respect to recommendations in cases not involving a violation of GATT 
1994 or any other covered agreement, see Article 26. 
452 See para. 8.225 above. WT/DS308/R 
Page 162  
 
 8.232  Both parties acknowledge that there is a dis pute between them concerning the United States' 
commitments under the NAFTA regarding the access of  Mexican sugar to the United States market.
453  
However, that is a separate dispute from the one that has been brought before this Panel.  First, it is a 
dispute regarding obligations under a different in ternational agreement, the NAFTA.  Second, the 
DSU and the terms of reference appr oved by the DSB define the limits of the matter that is before of 
this Panel.  Article 3.10 of the DSU states th at WTO Members understand that "complaints and 
counter-complaints in regard to distinct matters  should not be linked".  Consequently, even if, 
arguendo , the dispute between Mexico and the United States regarding access of Mexican sugar in the 
United States market were a matter under the WTO covered agreements, a Panel could not link the 
complaints and counter-complaints related to distinct matters in one single case. 
(c) Mexico's status as a developing country 
8.233  Mexico requests the Panel, in the course of its deliberations, to give the fullest weight to 
Mexico's status as a developing country and to the f act that agrarian reform entails a lengthy process 
of adjustment.454 
8.234  The Panel is aware of the crucial importance of the provisions on special and differential 
treatment in the WTO agreements in general, and of  Article 12.11 of the DSU in particular.  During 
the Panel proceedings, the Panel has taken into account Mexico's status as a developing country, inter 
alia, when establishing the timetable for the panel process, and has accorded flexibility within that 
timetable for the receipt of Mexico's submissions and responses.  In the course of these proceedings, 
however, Mexico has raised no specific provisions on differential and more-favourable treatment for 
developing country Members that require additional consideration.455 
4. Conclusion 
8.235  In light of the above considerations, the Pane l will follow Article 19.1 of the DSU as regards 
the recommendations that it makes. 
IX. CONCLUSIONS AND RECOMMENDATION 
9.1 For the reasons indicated in this report, the Panel has determined that, under the DSU, it has 
no discretion to decline to exercise its jurisdicti on in the case that has been brought before it. 
9.2 With respect to the United States' cl aims, the Panel concludes as follows: 
(a) With respect to Mexico's soft drink tax and distribution tax : 
(i) As imposed on sweeteners, imported beet sugar is subject to internal taxes in 
excess of those applied to like domestic sweeteners, in a manner inconsistent 
with Article III:2, first sentence, of the GATT 1994; 
(ii) As imposed on sweeteners, imported HFCS is being taxed dissimilarly 
compared with the directly competitiv e or substitutable products, so as to 
afford protection to the Mexican domest ic production of cane sugar, in a 
manner inconsistent with Article III:2,  second sentence, of the GATT 1994; 
                                                      
453 Mexico's first written submission, paras. 1-8, 12 , and 27-77.  United States' response to Panel 
question No. 73, paras. 62-64. 
454 Mexico's first written submission, paras. 105-109, 137 and 139.  Mexico's response to Panel 
question No. 24. 
455 Mexico's response to Panel question No. 39.  WT/DS308/R 
 Page 163 
 
 
 (iii) As imposed on sweeteners, imported beet sugar and HFCS are accorded less 
favourable treatment than that accorded to like products of national origin, in 
a manner inconsistent with Article III:4 of the GATT 1994; 
(iv) As imposed on soft drinks and syrups , imported soft drinks and syrups 
sweetened with non-cane sugar sweeteners (including HFCS and beet sugar) 
are subject to internal taxes in excess of those applied to like domestic 
products, in a manner inconsistent with Article III:2, first sentence, of the 
GATT 1994. 
(b) With respect to Mexico's bookkeeping requirements :  As imposed on sweeteners, 
imported beet sugar and HFCS are accorded  less favourable treatment than that 
accorded to like products of national or igin, in a manner inconsistent with 
Article III:4 of the GATT 1994. 
9.3 With respect to Mexico's invocation of Artic le XX(d) of the GATT 1994, the Panel concludes 
that the challenged tax measures are not justified as measures that are necessary to secure compliance 
by the United States with laws or regulations whic h are not inconsistent with the provisions of the 
GATT 1994. 
9.4 Under Article 3.8 of the DSU, in cases where there is an infringement of the obligations 
assumed under a covered agreement, the action is considered prima facie to constitute a case of 
nullification or impairment.  The Panel concludes that , to the extent that the measures listed above are 
inconsistent with the GATT 1994, they have nullif ied or impaired benefits accruing to the United 
States under that agreement. 
9.5 Having concluded that it has no discretion to depa rt from the procedure stated in Article 19.1 
of the DSU, the Panel recommends that the Disput e Settlement Body request Mexico to bring the 
inconsistent measures as listed above into conformity with its  obligations under the GATT 1994. 
 
_______________ 
 
   WT/DS308/R 
 Page A-1 
 
 
 ANNEX A 
 
REQUEST FOR THE ESTABLISHMENT OF A PANEL 
 
 
 WORLD TRADE  
ORGANIZATION  WT/DS308/4 
11 June 2004 
 
 (04-2542) 
 Original:   English 
 
  
MEXICO – TAX MEASURES ON SOFT DRINKS 
AND OTHER BEVERAGES 
 
Request for the Establishment of  a Panel by the United States
 
   The following communication, dated 10 June 2004, from the delegation of the United States to the Chairperson of the Dispute Settlement Body, is  circulated pursuant to Article 6.2 of the DSU. 
 
_______________ 
 
 
The United States considers that certain tax me asures of the Government of Mexico on soft 
drinks and other beverages as well as on syrups, con centrates, powders, essences or extracts that can 
be diluted to produce such products (hereinafter "b everages and syrups") that use any sweetener other 
than cane sugar are inconsistent with Mexi co's commitments and obligations under the General 
Agreement on Tariffs and Trade 1994  ("GATT 1994").  Those measures include: 
 (1) Law on the Special Tax on Production and Services ( Ley del Impuesto Especial sobre 
Producción y Servicios  or "IEPS") published on 1 January 2002 and its subsequent 
amendments published on 30 December 2002 and 31 December 2003
456; and 
 (2) any related or implementing measures, including the Reglamento de la Ley del Impesto 
Especial sobre Producción y Servicios published on 15 May 1990, the Resolucion Miscelanea 
Fiscal Para 2004 (Title 6)  published on 30 April 2004, and the Resolucion Miscelanea Fiscal 
Para 2003  (Title 6) published on 31 March 2003 which identify, inter alia , details on the 
scope, calculation, payment and bookkeeping and recording requirements of the IEPS. 
  Mexico's tax measures impose a 20 per cent tax on beverages and syrups that use sweeteners 
other than cane sugar.  Mexico's tax measures al so impose a 20 per cent tax on services related to the 
                                                     
 
456 Ley del Impuesto Especial sobre Producción y Servicios  (1 Jan. 2002); Se Reforman Y Adicionan 
Diversas Diposiciones de la Ley del Impuesto Especial sobre Producción y Servicios , (30 Dec. 2002); Se 
Reforman, Adicionan y Derogan Diversas Disposiciones de la Ley Del Impuesto Al Valor Agregado, de la Ley 
Del Impuesto Sobre La Renta, de la Ley Del Impuesto Especial Sobre Produccióny y Servicios, de la Ley Del 
Impuesto Sobre Tenencia o Uso De Vehículos, de la Ley Federal Del Impuesto Sobre Automóviles Nuevos y de la Ley Federal De Derechos  (31 Dec. 2003); Ley del Impuesto Especial sobre Producción y Servicios  
(31 Dec. 2003). WT/DS308/R 
Page A-2  
 
 transfer of beverages and syrups, including the commissioning, mediation, agency, representation, 
brokerage, consignment and distribution of such prod ucts.  Beverages and syru ps sweetened only with 
cane sugar, and services related to their tr ansfer, are not subject to these measures. 
  Mexico's tax measures also impose severa l bookkeeping and reporting requirements on 
beverages and syrups, and services related to the tr ansfer of such products, that are not similarly 
imposed on beverages and syrups sweetened only w ith cane sugar, or on services related to the 
transfer of beverages and syrups  sweetened only with cane sugar. 
  The United States considers that Mexico's tax measures discriminate against imported 
sweeteners other than cane sugar (including high -fructose corn syrup ("HFCS")), and imported 
beverages and syrups made with such sweetener s, because Mexico's tax measures do not apply to 
cane sugar, or beverages and syr ups made solely with cane sugar.  The United States considers 
imported sweeteners other than cane sugar, and im ported beverages and syr ups made with such 
sweeteners, including HFCS and beverages and syr ups made with HFCS, to be like and directly 
competitive or substitutable with Mexican cane suga r and beverages and syrups made with Mexican 
cane sugar.   The United States considers that Mexico's ta x measures are inconsistent with Mexico's 
obligations under Article III of the GATT 1994.  In pa rticular, Mexico's tax measures appear to be 
inconsistent with Article III:2, first and sec ond sentences, and Article III:4 of the GATT 1994.  
 
 On 16 March 2004, the United States requested c onsultations with the G overnment of Mexico 
pursuant to Articles 1 and 4 of the Understanding on Rules and Procedures Governing the Settlement 
of Disputes  ("DSU") and Article XXII:1 of the GA TT 1994 concerning Mexico's tax measures on 
beverages and syrups, and services related to the tr ansfer of such products.  The United States held 
consultations with Mexico on these measures in Geneva on 13 May 2004.  Unfortunately, these 
consultations did not resolve the dispute.   
Accordingly, the United States respectfully requ ests the Dispute Settlement Body to establish 
a panel pursuant to Article 6 of the DSU to examine this matter with standard terms of reference as set 
out in Article 7.1 of the DSU. 
 
  WT/DS308/R 
 Page B-1 
 
 
 ANNEX B 
 
FAX DATED 18 JANUARY 2005 FROM THE CHAIRMAN OF THE PANEL  
TO THE PARTIES AND THIRD PARTIES CONCERNING  
MEXICO'S REQUEST FOR A PRELIMINARY RULING  
 
  As you know, Mexico, as the responding party in these proceedings, has asked the Panel to 
decline to exercise its jurisdiction in the case in favour of an Arbitral Panel under Chapter Twenty of 
the North American Free Trade Agreement (NAFTA ).  Mexico asked that the Panel make this 
decision through a preliminary ruling. 
  The Panel has had the opportunity to consider Me xico's request, as well as the arguments on 
the matter presented by the United States - the compla ining party in these proceedings -, and by third 
parties, including the arguments presented in the responses to questions formulated by the Panel. 
 
 After careful consideration of the matter, the Panel has decided to reject Mexico's request.  
The Panel considers that, under the Understanding on  Rules and Procedures Governing the Settlement 
of Disputes (DSU), it does not have the discretion, as argued by Mexico, to decide not to exercise its jurisdiction in a case that has been  properly brought before it.  In any event, even if it had such 
discretion, the Panel does not consider that the circ umstances of this case would justify it declining to 
exercise its jurisdiction in the present dispute. 
  The Panel will provide the parties with a fully detailed reasoning for this decision in its report.  
The decision in no way affects the merits of the subs tantive claims brought by the United States in the 
present case, nor the defences to these claims raised by Mexico.