DOMINICAN REPUBLIC – MEASURES AFFECTING THE IMPORTATION AND INTERNAL SALE OF CIGARETTES
Document: Report of the Appellate Body
Date: 25 April 2005
Document codes: WT/DS302/AB/R
Complainant: Honduras
Respondent: Dominican
Third parties: Chile, China, EU, El Salvador, Guatemala, Nicaragua, U.S.
Dispute stage: Appellate Body
Agreements cited: Art. III:2, III:4, X:3(a), X:1, II:1, XI:1, XV  GATT 1994

DOMINICAN REPUBLIC – MEASURES AFFECTING THE IMPORTATION
AND INTERNAL SALE OF CIGARETTES

AB-2005-3

Report of the Appellate Body

APPELLATE BODY

Dominican Republic, Appellant/Appellee
Honduras, Appellant/Appellee

China, Third Participant
El Salvador, Third Participant
European Communities, Third Participant
Guatemala, Third Participant
United States, Third Participant

 AB-2005-3

 Present:

 Baptista, Presiding Member
 Lockhart, Member
 Sacerdoti, Member

I. Introduction
1. The Dominican Republic and Honduras each a ppeals certain issues of law and legal
interpretations developed in the Panel Report, Dominican Republic – Me asures Affecting the
Importation and Internal Sale of Cigarettes (the "Panel Report").
1 The Panel was established on
9 January 2004 to consider claims by Honduras in respect of five measures taken by the Dominican
Republic in connection with the importation and intern al sale of cigarettes. Honduras made claims in
respect of these measures under various provisions of Articles II, III, X, and XI of the General
Agreement on Tariffs and Trade 1994 (the "GATT 1994"). The Dominican Republic requested the
Panel to dismiss all of Honduras' claims, and also submitted that certain of the Dominican Republic's
measures could be justified under the terms of Articles XX(d) and XV:9(a) of the GATT 1994.
2. The Panel Report was circulated to Members of the (the "WTO")
on 26 November 2004. The Panel found that: the imposition by the Dominican Republic of a two
percent transitional surcharge for economic stabili zation is an "other duty or charge" that is
inconsistent with Article II:1(b) of the GATT 1994 2; the imposition by the Dominican Republic of a
foreign exchange fee constitutes an "other duty or ch arge" that is inconsistent with Article II:1(b) of
the GATT 1994 and that cannot be justified as an exchange restriction within the meaning of

1WT/DS302/R, 26 November 2004.
2Panel Report, para. 8.1(b).

Article XV:9(a) of the GATT 1994
3; and, that the requirement of the Dominican Republic that a tax
stamp be affixed to all cigarette packets in its te rritory and under the supervision of the local tax
authorities is inconsistent with Article III:4 of the GATT 1994, which cannot be justified under
Article XX(d) of the GATT 1994. The Panel reco mmended that the Dispute Settlement Body (the
"DSB") request the Dominican Republic to bring th ese measures into conformity with its obligations
under the GATT 1994.4
3. The Panel made additional findings of incons istency with respect to certain rules and
administrative practices used by the Dominican Rep ublic to determine the tax base for the purpose of
applying the Selective Consumption Tax, which we re no longer in force at the time of the Panel
Report.5 The Panel, however, declined to make an y recommendations to the DSB regarding these
measures as they were no longer in force.6
4. The Panel found that Honduras had failed to establish that the requirement by the Dominican
Republic that importers and domestic producers pos t a bond of five million pesos (RD$5 million) is
inconsistent with Article XI:1 or, alternatively, with Article III:4, of the GATT 1994.7
5. On 24 January 2004, the Dominican Republic no tified the DSB of its intention to appeal
certain issues of law covered in the Panel Report and certain legal interpre tations developed by the
Panel, pursuant to paragra ph 4 of Article 16 of the Understanding on Rules and Procedures
Governing the Settlement of Disputes (the "DSU"), and filed a Notice of Appeal 8 pursuant to Rule 20
of the Working Procedures for Appellate Review (the "Working Procedures").9 On 31 January 2005,
the Dominican Republic filed its appellant's submission.10 On 7 February 2005, Honduras notified the
DSB of its intention to appeal certain issues of law covered in the Panel Report and certain legal
interpretations developed by the Panel, pursuant to Article 16.4 and Article 17 of the DSU, and filed a
Notice of Other Appeal 11 pursuant to Rule 23(1) of the Working Procedures. On 8 February 2005,
Honduras filed its other appellant's submission. 12 On 18 February 2005, the Dominican Republic and

3Panel Report, paras. 8.1(c) and 8.1(d).
4Ibid., para. 8.2.
5Ibid., paras. 8.1(b)-8.1(d).
6Ibid., para. 8.3. The Panel also found that Honduras had failed to establish that the Dominican
Republic legislation for the determination of the tax base for the Selective Consumption Tax subjected imported
cigarettes to taxes in excess of those applied to like domestic products. (Ibid., para. 8.3(a))
7Ibid., para. 8.1(f).
8WT/DS302/8, 24 January 2005 (attached as Annex 1 to this Report).
9WT/AB/WP/5, 4 January 2005.
10Pursuant to Rule 21(1) of the Working Procedures.
11WT/DS302/9, 7 February 2005 (attached as Annex 2 to this Report).
12Pursuant to Rule 23(3) of the Working Procedures.

Honduras each filed an appellee's submission.13 On the same day, China, the European Communities,
and the United States each filed a third participant's submission. 14 Also on 18 February 2005,
Guatemala notified its intention to appear at the oral hearing as a third participant. 15 El Salvador
notified its intention to appear at the oral hearing on 7 March 2005.16
6. The oral hearing in this appeal was held on 9 March 2005. The participants and third
participants presented oral arguments and respond ed to questions posed by the Members of the
Division hearing the appeal.
II. Arguments of the Participants and the Third Participants
A. Claims of Error by the Dominican Republic – Appellant
1. The Necessity Analysis under Article XX(d) of the GATT 1994 in Relation
to the Tax Stamp Requirement
7. The Dominican Republic submits that, in cons idering whether the Dominican Republic's tax
stamp measure was justified under Article XX(d) of the GATT 1994, the Panel was "reviewing the
decision making" of the Dominican Republic's authorities. 17 As such, the Panel should have afforded
the Dominican Republic a margin of discretion and should have assessed whether the Dominican
Republic had a reasonable basis for its measure.
8. The Dominican Republic claims that the Panel erred in interpreting and applying the term
"necessary" in Article XX(d) of the GATT 1994. Th e Dominican Republic points to the Reports of
the Appellate Body in Korea – Various Measures on Beef and EC – Asbestos and contends that
determining whether a measure is "necessary" under Article XX(d) involves, in every case, a process
of weighing and balancing a series of factors. According to the Dominican Republic, a panel must
weigh and balance: the trade impact of the measure ; the importance of the interests protected by the
measure; the contribution of the measure to the end pursued; and, the existence of alternative
measures that a Member could reasonably be expect ed to employ. The Panel erred by analyzing only
the existence of reasonably available alternatives to the tax stamp measure, and by failing to analyze,
weigh, and balance the other relevant factors. Th e Dominican Republic points out that it is unlikely

13Pursuant to Rule 22 of the Working Procedures.
14Pursuant to Rule 24(1) of the Working Procedures.
15Pursuant to Rule 24(2) of the Working Procedures.
16Pursuant to Rule 24(4) of the Working Procedures.
17Dominican Republic's appellant's submission, para. 27.

that each factor will "indicate the same degree of necessity".
18 Therefore, a panel must ascertain the
collective strength of the factors. This requires a pa nel to consider the weight of each factor and to
balance their relative weights, so as to determin e whether, collectively, they render the measure
necessary.
9. According to the Dominican Republic, a prope r weighing and balanci ng of the relevant
factors leads to the conclusion that the tax stamp requirement is "necessary" within the meaning of
Article XX(d) of the GATT 1994. As regards the firs t factor, namely the trade impact of the measure,
the Dominican Republic underlines that the Panel acknowledged that the trade impact of the tax stamp
requirement is minimal. The Dominican Republic asserts that the Appellate Body has indicated that a
measure with "a relatively slight impact upon imported products might more easily be considered as
'necessary' than a measure with inte nse or broader restrictive effects."
19 For the Dominican Republic,
the findings of the Panel in this respect dictate th at, in the overall weighing and balancing of all the
relevant factors, the tax stamp requirement may be more easily considered to be "necessary".
10. On the second factor—the importance of the interests protected by the measure—the
Dominican Republic reiterates that the tax stamp requirement is designed to secure tax compliance
and prevent deceptive practices, and that these interests are important. The Dominican Republic notes
that the Panel acknowledged that the prevention of ta x evasion is an important interest and recalls the
Appellate Body's view that the "more vital or im portant those common interests or values are, the
easier it would be to accept as 'necessary' a meas ure designed as an enforcement instrument." 20 The
Dominican Republic adds that the link between cigarette smuggling and public health is well-
established; consequently, as the tax stamp requireme nt aims to prevent the smuggling of cigarettes,
it also helps to ensure the health and well-bei ng of citizens, "both of which are interests of
fundamental and critical importance".21 The Dominican Republic argues that, in the overall weighing
and balancing, it should be easier to accept the tax stamp requirement as a "necessary" enforcement
instrument because of the value and importance of the interests it protects.

18Dominican Republic's appellant's submission, para. 32.
19Ibid., para. 34 (quoting Appellate Body Report, Korea – Various measures on Beef, para. 163).
20Ibid., para. 37 (quoting Appellate Body Report, Korea – Various measures on Beef, para. 162).
21Ibid., para. 40.

11. The third factor addressed by the Dominican Re public is the contribution of the measure to
the ends pursued. The Dominican Republic contends that affixation of tax stamps in the presence of a
tax inspector contributes more to the prevention of tax evasion than affixation abroad, without the
presence of a tax inspector. The Dominican Republic underlines that affixing the stamp abroad would
make it possible for cigarettes smuggled into the Do minican Republic to be sold as stamped, while
evading import taxes. Such a situation is prevented by the requirement to affix stamps in the
Dominican Republic in the presence of a tax inspector , except if the stamp is forged. Thus, for the
Dominican Republic, the tax stamp requirement no t only seeks to ensure the authenticity of tax
stamps, but also "contributes importantly to re ducing the volume of smuggled cigarettes and
increasing the volume of cigarettes bearing 'authentic tax stamps' ".22
12. As regards the question of the existence of alternative measures that a Member could
reasonably be expected to employ in place of the GATT-inconsistent measure, the Dominican
Republic submits that the Panel wrongly concluded that an alternative measure is reasonably available
in this case. According to the Dominican Republic, the measur e to which the Panel alluded—
providing secure tax stamps to foreign exporters a nd affixing the stamps abroad, possibly under the
supervision of a reputable company that would c onduct pre-shipment inspection and certification—is
not an alternative that is reasonably available b ecause it would increase the risk of smuggling and tax
evasion, as compared with the tax stamp requirement, and, therefore, would be less likely to secure
the goals pursued by the tax stamp requirement. The Dominican Republic points to evidence that
cigarette producers actively collaborate in the smuggling of cigarettes. It also points to evidence of a
higher prevalence of smuggling of alcoholic beve rages, which it argues results from allowing the
affixation of tax stamps outside of the territory of the Dominican Republic.
13. On this basis, the Dominican Republic submits that the Panel erred in finding that the
Dominican Republic's tax stamp requirement is not "necessary" in the sense of Article XX(d) of the
GATT 1994. It requests the Appellate Body to reverse the Panel's finding in this regard.

22Dominican Republic's appellant's submission, para. 45.

14. In response to information concerning the recent modification of the tax stamp measure
referred to by Honduras in its open ing statement at the oral hearing
23, the Dominican Republic
confirmed that a new decree had been passed that a ltered the application of the tax stamp requirement
and allowed tax stamps to be affixed abroad. 24 The Dominican Republic, however, considers that the
new measure reflects a change in the level of en forcement that it seeks to achieve. It therefore
continues to maintain that only the affixation of stamps in the territory of the Dominican Republic,
under the supervision of its tax authorities, can ach ieve its desired level of enforcement against
smuggling and tax evasion.
2. Completing the Analysis under Article XX of the GATT 1994
15. In the event that the Appellate Body agrees with the Dominican Republic and reverses the
Panel's finding that the tax stamp requirement is not "necessary" in the sense of paragraph (d) of
Article XX of the GATT 1994, the Dominican Republic requests the Appellate Body to complete the
legal analysis of its defence under Article XX of the GATT 1994 and find that the tax stamp
requirement is not inconsistent with the GATT 1994.
16. The Dominican Republic submits that its tax stamp requirement is necessary to secure
compliance with its Tax Code. It does so by aler ting the Dominican Republic tax authorities that the
applicable taxes have been collected and thereb y prevents tax evasion. Further, the tax stamp
requirement prevents cigarette smuggling because ci garettes are smuggled specifically to evade taxes
and other applicable laws. The Dominican Repub lic observes that Honduras has not challenged the
GATT-consistency of its Tax Code and itself noted th at the Dominican Republic has the right to levy
duties and taxes upon cigarettes. On this basis, the Dominican Republic submits that its tax stamp
measure properly falls within the ambit of paragraph (d) of Article XX.
17. The Dominican Republic also submits that the tax stamp requirement is applied in a manner
that satisfies the chapeau of Article XX of the GA TT 1994. The tax stamp requirement is not applied

23Paragraph 7 of Honduras' opening statement reads:
Honduras is surprised that the Dominican Republic is taking [the position
that affixing tax stamps abroad is not a reasonably av ailable alternative
measure]. In October 2004, it enacted Decree No. 1360 – 04 to modify
Article 37 of the Decree 79-03 in order to allow importers to affix the tax
stamp abroad at the time of production. Pursuant to this Regulation,
Honduras exported a cigarette shipment two weeks ago with the tax stamps
affixed at the point of production. Honduras assumes that the Dominican
Republic still maintains its interest of maintaining tax collection and
preventing smuggling and forgery. Therefore, by allowing the tax stamps to
be affixed abroad, the Dominican Republic has acknowledged that this
alternative measure is r easonably available and can contribute to the ends
pursued. ... (footnotes omitted)
24Dominican Republic's response to questioning at the oral hearing.

in a manner that discriminates between different fo reign supplying countries or between domestic and
foreign suppliers of cigarettes. Indeed, Honduras has not made allegations to the contrary. Moreover,
even if the Appellate Body were to find that the me asure is applied in a discriminatory manner, there
is nothing to suggest that any such discrimination is arbitrary or unjustifiable. Nor is there anything to
suggest that the tax stamp requirement is applied in a manner that constitutes a disguised restriction
on international trade.
3. The Conformity of the Panel's Examin ation of Exhibits DR-8 and DR-29
with Article 11 of the DSU
18. The Dominican Republic contends that the Pane l failed to make an objective assessment of
the facts of the case, contrary to Article 11 of the DSU, by misinterpreting evidence submitted in
Exhibits DR-8 and DR-29 and by misunderstanding the proposition in support of which these exhibits
were introduced. Although it recognizes that panels enjoy a margin of discretion in their appreciation
of the evidence before them, according to the Dominican Republic, the Panel in this case exceeded the
bounds of this discretion because an objective trie r of facts could not have reached the Panel's
conclusion on the basis of the evidence presented.
19. The Dominican Republic sought to demonstrate th rough Exhibits DR-8 and DR-29 "that, in
the case of alcohol, a product in respect of which ta x stamps can be affixed abroad: (a) there is
smuggling into the territory of the Dominican Republic; and (b) tax stamps are forged." 25 The Panel,
however, misread the letter incorporated in E xhibit DR-8 (Memo DAT-No. 46) and erroneously
concluded that it did not demonstrate the forgery of tax stamps. The Panel also misunderstood the
proposition for which Exhibit DR-8 was offered. The exhibit was offered as evidence of the existence
of forgery of tax stamps, on the one hand, and smuggling of products, on the other. The Panel,
however, incorrectly focussed on the relationship between smuggling and forgery. Exhibit DR-29, for
its part, was offered for its probative value as to the smuggling of alcohol into the Dominican
Republic. The Panel, however, simply disregarded the evidence in Exhibit DR-29, and mistakenly
took it as evidence of forgery of tax stamps. Exhibi t DR-29 was not offered as evidence of forgery of
tax stamps. In addition, the Pane l concluded that these two exhibits did not establish the existence of
a causal link between allowing stamps to be affixe d abroad and forgery of tax stamps. However,
according to the Dominican Republic, there is irrefu table evidence on record that demonstrates that,
whereas alcoholic beverages—which may be st amped outside the Dominican Republic—are

25Dominican Republic's appellant's submission, para. 79.

smuggled with forged tax stamps, this practically ne ver happens with cigarette s. The Panel failed to
appreciate these facts as well. The Dominican Republic concludes that the Panel's findings,
purportedly based on Exhibits DR-8 and DR-29, are wrong, and could not have been reached by an
objective trier of facts. The Panel therefore failed to comply with its duty under Article 11 of the
DSU.
B. Arguments of Honduras – Appellee
1. The Necessity Analysis under Article XX(d) of the GATT 1994 in Relation
to the Tax Stamp Requirement
20. Honduras argues that the Dominican Republic has mischaracterized its appeal as one
regarding the interpretation and application of Article XX(d) of the GATT 1994 to the tax stamp
requirement, whereas, in reality, the Dominican Re public is asking the Appellate Body to reassess the
evidence that was before the Panel and come to a different conclusi on. According to Honduras, the
Dominican Republic has not demonstrated that the Panel misinterpreted or misapplied the "necessity"
test under Article XX(d). Honduras also submits th at the Dominican Republic has not demonstrated
any legal errors in the Panel's findings; rather, the Dominican Republic is seeking to re-argue the
facts of the case and the conclusions that it considers should be drawn.
21. Moreover, according to Honduras, the Dominican Republic is attempting to introduce new
factual elements in alleging that cigarette produ cers collaborate in smuggling, and that it would not,
therefore, be appropriate to cede any control ove r the tax stamping process to producers. Honduras
observes that there is no undisputed evidence upon which to base this assertion and urges the
Appellate Body to disregard these allegations. In addition, the Dominican Republic is seeking to
introduce the protection of human health as an obj ective to be secured by the discriminatory aspects
of the tax stamp requirement. However, the Do minican Republic has not demonstrated why its
measure protects human health. Honduras notes that protection of human health is dealt with under
Article XX(b), not Article XX(d), and that arguments regarding human health were not made before
the Panel. There are, therefore, no factual fi ndings that would support the Dominican Republic's
arguments regarding human health and the Appellate Body should give them "no credence".26
22. Turning to the substantive question of whether the tax stamp requirement is "necessary" in the
sense of Article XX(d) of the GATT 1994, Hondu ras disagrees with the Dominican Republic's
submission that the Panel failed to weigh and balance the factors identified by the Appellate Body in
Korea – Various Measures on Beef as relevant to the assessment of necessity under Article XX(d).

26Honduras' appellee's submission, para. 22.

In Honduras' view, the Panel properly examined the relative importance of the interest served by the
measure at issue. Honduras contests the Dominican Republic's assertion, which was not put forward
before the Panel, that the measure aims to protect human life or health. The thrust of the tax stamp
requirement is fiscal in nature, which, although important, is not on a par with the protection of
human life or health. According to Honduras, the Pa nel also examined the extent to which the tax
stamp requirement contributes to securing compliance with the Dominican Republic's tax laws and
regulations. The Panel found that the Dominica n Republic had not proven that discriminatory
enforcement of the tax stamp requirement facilita tes the prevention of tax evasion and smuggling.
Moreover, the Dominican Republic did not provide the text of any laws against smuggling with which
the tax stamp requirement would secure compliance. The Panel also examined whether the tax stamp
requirement had restrictive effects on international co mmerce. Although, in this regard, the Panel felt
it could assume that the measure did not have "intense restrictive effects on trade" 27, the fact that it
went on to consider less-trade restrictive alternativ es demonstrates that it considered the measure had
at least some adverse affect on trade. In the view of Honduras, contrary to the submission of the
Dominican Republic, the Panel properly weighed and balanced these considerations.
23. The Panel also properly identified a less-trad e restrictive alternative to the tax stamp
requirement imposed by the Dominican Republic, in accordance with the ap plicable standard for
evaluating whether a measure is "necessary" in the sense of Article XX(d). The Panel was correct to
find that allowing stamps to be affixed abroad, coupled with pre-shipment inspection and certification,
would achieve the same level of enforcement. Honduras dismisses the two factors raised by the
Dominican Republic in seeking to rebut the Panel's fi nding in this regard. First, with respect to the
Dominican Republic's argument that cigarette producers actively collude in the smuggling of
cigarettes, Honduras submits that this is an ex post facto justification for the measure, which, in any
event, is merely an unsubstantiated assertion. The same is true of the Dominican Republic's second
argument, namely the allegedly higher rate of smug gling that occurs with respect to alcohol resulting
from the affixation of stamps outside of the terr itory of the Dominican Republic. The Dominican
Republic has a weak factual basis upon which to assert that there is a higher prevalence of smuggling
with respect to alcohol and there is no eviden ce of a causal relationship between the tax stamp
requirement for cigarettes and the allegedly lower level of smuggling. Against that background, the
Panel correctly found that allowing importers to affix stamps abroad during the production process
would achieve the same level of enforcement as the existing measure; that this alternative measure
would be administratively feasible for the Dominica n Republic; and that this alternative measure
would be less-trade restrictive than the current measure.

24. Because the Dominican Republic has not demonstr ated why the Panel erred in its application
of the necessity test under Article XX(d), the Appellate Body should uphold the Panel's analysis.
25. At the oral hearing, Honduras drew attention to the fact that, in October 2004, the Dominican
Republic enacted a new Decree modifying the tax stamp requirement so as to allow importers to affix
tax stamps abroad, at the time of production.
28 Pursuant to this new measure, Honduras recently
exported to the Dominican Republic a shipment of ci garettes with stamps attached at the factory.
With these developments in mind, Honduras e xpressed surprise that the Dominican Republic
continues to maintain that the on ly measure reasonably available to it is affixation of tax stamps
within the Dominican Republic, under the supervisi on of the tax authorities. Honduras nevertheless
confirmed that it requests the Appellate Body to ru le on the WTO-consistency of the original measure
embodying the tax stamp requirement, and re quested that the Appellate Body make a
recommendation under Article 19.1 of the DSU re questing the Dominican Republic to bring its
measure into conformity with its obligations under the GATT 1994.
2. Completing the Analysis under Article XX of the GATT 1994
26. Honduras contends that, even if the Appellate Bo dy were to reverse the finding of the Panel
regarding the interpretation and application of the "necessity" test under Article XX(d) of the
GATT 1994, it would have to find, in any event, that the Dominican Republic did not demonstrate
that the measure at issue meets the requirement of the chapeau to Article XX. Honduras observes that
an analysis under the chapeau would require the Appellate Body to focus upon "the application of
the [tax stamp] measure and not the measure as such".29 The burden of proof in such an analysis falls
upon the party raising the defence. In Honduras' submission, the Dominican Republic did not
discharge its burden under the chapeau before the Panel; nor has it done so before the Appellate
Body. The Dominican Republic has not presented any evidence to substantiate its assertions that the
tax stamp requirement is applied in a manner that is consistent with the chapeau. Indeed, there are no
factual findings by the Panel regarding the applica tion of the chapeau. Nor are there undisputed facts
on the record. It is not, therefore, legally possible for the Appellate Body to complete the analysis in
this case.
27. Honduras further submits that, even if the Appella te Body were nevertheless to complete the
analysis under the chapeau to Article XX of the GATT 1994, it should find that the tax stamp
requirement is applied in a manner that constitutes arbitrary or unjustifiable discrimination between
countries where the same conditions prevail. H onduras points to evidence in Exhibit DR-3 that

28See paragraph 7 of Honduras' opening statement, supra, footnote 23.
29Honduras' appellee's submission, para. 75. (original emphasis)

suggests that, in practice, the Dominican Republic allows domestic producers to deduct the cost of tax
stamps from their eventual liability under the Sele ctive Consumption Tax. This deduction is not
authorized on the face of the legislation governing the application of the tax stamp requirement, and is
not available to importers. This differential in the treatment of importe rs and domestic producers
constitutes both arbitrary and unjustifiable discriminati on, and, therefore, is inconsistent with the
chapeau to Article XX.
3. The Conformity of the Examination of Exhibits DR-8 and DR-29 with
Article 11 of the DSU
28. Honduras submits that the Panel made an objective assessment of the facts of the case and did
not exceed the bounds of its discretion in its consid eration of Exhibits DR-8 and DR-29. Honduras
observes that the Dominican Republic, in its first writ ten submission to the Panel, argued that Exhibit
DR-8 provided evidence regarding smuggling and tax evasion, " as well as forgery of tax stamps". 30
The Dominican Republic also entitled Exhibit DR -8 "Evidence of forgery, smuggling and tax
evasion". The Dominican Republic is therefore wrong, in its appeal, to blame the Panel for finding
that Exhibit DR-8 provided no evidence as to the re lationship between smuggling and forgery of tax
stamps. Any reasonable trier of facts could have co nstrued the evidence as the Panel did: that is, as
referring to a single case in which alcohol products were smuggled into the Dominican Republic with
forged tax stamps. Indeed, the Panel correctly found that the evidence in Exhibit DR-8 was
completely unrelated to any problem of forgery and that Memo DAT-No. 46, which was included in
Exhibit DR-8, did not prove the occurrence of forg ery in stamps. Honduras does not consider that
certain minor errors by the Panel in its characteri zation of the evidence was anything more than an
inconsequential mistake. Such minor errors do not constitute an egregious error by the Panel that
would warrant a finding that the Panel failed to meet its obligations under Article 11 of the DSU.
29. With respect to Exhibit DR-29, Honduras recalls that panels enjoy broad discretion to choose
which evidence to utilize in making findings and that panels are not required to accord to factual
evidence the same weight as do the parties. Agains t that background, the Panel committed no error in
deciding not to deal with Exhibit DR-29. The Panel was not bound to draw the same conclusion from
this evidence as the Dominican Republic wanted it to draw.

30Honduras' appellee's submission, para. 101 ( quoting the Dominican Republic's first written
submission to the Panel, para. 61). (emphasis added by Honduras)

C. Claims of Error by Honduras – Appellant
1. Article III:4 of the GATT 1994 and the Bond Requirement

30. Honduras challenges the Panel's conclusion that the bond requirement does not accord less
favourable treatment to imported cigarettes in te rms of Article III:4 of the GATT 1994. Honduras
submits that the Panel failed to recognize that the bond requirement imposes an "extra burden" on
imported products compared with domestic produc ts. According to Honduras, the bond requirement
secures only the payment of the Selective Consump tion Tax. Whereas the importer has to pay the
amount due for the Selective Consumption Tax prio r to importation and has to post a bond to secure a
tax liability that has already been discharged, the domestic producer has until the twentieth day of the
month following the taxable transaction to pay the Selective Consumption Tax. 31 Honduras contends
that this lack of symmetry between the liabilities secured by the bond constitutes an "extra hurdle" or
"extra burden" for imported products.32 Also, Honduras argues that the Panel erred in finding that the
Dominican Republic has demonstrated that its tax authorities have the legal powers to reassess and
adjust the applicable tax liabilities for a period of up to three years.
31. Honduras submits that the bond requirement creates situations in which imported products are
accorded conditions of competition less favourable th an those accorded to domestic products. In
particular, Honduras underlines that, as in 2003 "the amount of Selective Consumption Tax imposed
on domestic cigarettes ... was about three times higher than the amount imposed on imported
cigarettes ... the per-unit cost of the bond require ment for imported cigarettes was ... three times
higher than for domestic products."
33 For Honduras, this illustrates that the bond requirement creates
situations in which imported products are accord ed conditions of competition less favourable than
those accorded to domestic products.
32. Honduras also considers that the Panel erred in its evaluation of the per-unit cost of the bond.
According to Honduras, the Panel should have examined the conditions of competition established by
the legislation, rather than the market situation in which the bond requirement was applied. In any
event, Honduras notes that the bond requirement wa s introduced in March 2003 and argues that the
per-unit cost determined by the Panel was incorrect , because it was based on the volume of imports in
the years 2000-2002, and on the cost charged by financial institutions for a bond fee in 2004. 34
Honduras adds that, as the Panel did not determine th e per-unit cost for domestic producers, it could

32Ibid.
33Ibid., para. 70. (original emphasis)
34Ibid., para. 44.

not compare the per-unit costs between imported pro ducts and domestic like products. Accordingly,
Honduras argues, the Panel did not have any basi s upon which to conclude that there was no less
favourable treatment being accorded to imports. Finally, Honduras submits that the Panel erred
because it stated that the fact that a fixed expen se (that is, an expense not related to volume of
production) may lead to different per-unit costs among supplier firms is not in itself enough to
conclude that the expense creates less favourable treatment for imported products.
2. Article XX(d) of the GATT 1994 and the Bond Requirement
33. At the oral hearing, Honduras responded to the claim raised by the Dominican Republic that,
even if the Appellate Body accepts Honduras' appeal under Article III:4 of the GATT 1994 against the
bond requirement, the measure is nevertheless ju stified under Article XX(d) of the GATT 1994.
Honduras submits that the Dominican Republic must have in place alternative measures for products,
other than cigarettes and alcohol, that are also s ubject to the Selective Consumption Tax. These
alternative measures would be reasonably available to secure compliance with tax laws in the case of
cigarettes as well. In Honduras' view, the Appella te Body should find that the Dominican Republic
has not proven that its bond requirement is necessary to secure compliance with its tax laws.
3. Article 11 of the DSU and the Panel's Consideration of the Bond
Requirement "As Such"
34. Honduras claims that the Panel failed to make an objective assessment of the matter before it,
contrary to Article 11 of the DSU, in finding that the bond requirement secured obligations other than
the Selective Consumption Tax. Honduras emphasizes that its claims relate to the bond requirement
as such, independently from the application of that legislation in specific circumstances. According to
Honduras, the Panel did not, however, consider the le gislative basis of the bond requirement as such,
but instead relied upon a letter from the Dominican Republic Director-General of Internal Taxes
(referred to as Exhibit DR-12) that contradicted the terms of the underlying legislation. Honduras
argues that, in analyzing its cl aim against the bond requirement as such, the Panel "should have
properly examined only ... the terms of the legi slation and [should] not have relied on the
unsubstantiated views of one officer of an agency of the Dominican Republic". 35 Honduras finds
support for its view in the Report of the Appellate Body in India – Patents (US), where the Appellate
Body found that certain "administrative instructions " regarding the application of India's Patents Act
were insufficient to alter the WTO-inconsistent natu re of that legislation because they appeared to
contradict the terms of that legislation.

4. The Timing of Payment of the Selec tive Consumption Tax and the Panel's
Terms of Reference
35. Honduras submits that the Panel erred in treati ng certain contentions regarding the timing of
payment of the Selective Consumption Tax as a separate claim outside of the Panel's terms of
reference. Honduras submits that these contentions were simply arguments in support of its claim that
the bond requirement violated Article III:4 of th e GATT 1994. Honduras asks the Appellate Body to
reverse the Panel's finding that these contentions were outside the Panel's terms of reference.
D. Arguments of the Dominican Republic – Appellee
1. Article III:4 of the GATT 1994 and the Bond Requirement

36. The Dominican Republic submits that the Panel correctly interpreted the term "treatment no
less favourable" in Article III:4 of the GATT 1994 and requests the Appella te Body to reject
Honduras' appeal against this finding. The Dominican Republic submits that Honduras advocates an
erroneous interpretation of Article III:4.
37. According to the Dominican Republic, the Panel reached its conclusion with respect to the
application of Article III:4 after properly identifying that Article III:4 requires an analysis of the
conditions of competition prevailing between imports and like domestic products and having
examined the impact of the bond requirement upon cond itions of competition in the relevant market.
The Dominican Republic submits that Honduras' main criticism is that the Panel considered the
relevant market to determine whether the bond requirement accords less favourable treatment to
imported cigarettes. For the Dominican Republic, however, an examination of whether a measure
accords less favourable treatment to imports requires a panel to analyze the "thrust and effect" of the
measure on conditions of compe tition in the relevant market.
36 This means that the existence of
formally different treatment is not sufficient to show a violation of Article III:4. By the same token,
the need for close scrutiny of the "effect" of a measure means that formally identical treatment is not
necessarily consistent with Article III:4. Inst ead, the application of Article III:4 depends upon
whether the measure in question modifies the conditions of competition to the detriment of importers.
The question that a panel must answer, therefore, is whether the measure gives domestic producers a
competitive advantage in the relevant market.

36Dominican Republic's appellee's submission, para. 46 (referring to Appellate Body Report, Korea –

38. According to the Dominican Republic, Honduras' objection to the Panel's approach is based
on the untenable proposition that, in a case where a Me mber challenges a measure "as such", alleging
de facto less favourable treatment, a panel cannot look beyond the text of the measure itself to
consider the factual evidence that would prove de facto discrimination. The Dominican Republic
notes that, although Honduras recognizes that the bond requirement imposes formally equal treatment,
Honduras would preclude examination of evidence other than the text of the legislation in examining
whether the formally equal treatment under the law nevertheless establishes de facto discrimination.
39. The Dominican Republic argues that Honduras' pos ition is contrary to WTO jurisprudence on
national treatment, in which panels and the A ppellate Body have consistently looked to the
application of the measure in question, its operati on, and its effects on the conditions of competition
in the relevant market. The Dominican Republic poi nts to the approach taken to the analysis of
de facto discrimination by the Appellate Body in Canada – Autos and in Chile – Alcoholic
Beverages and by panels in EC – Bananas III (Article 21.5 – Ecuador) , Canada – Pharmaceutical
Patents, and Japan – Film in support of its argument that Honduras is incorrect to claim on appeal
that the Panel should have examined the effect of the bond requirement without looking at the
relevant market or the application of the measure , and without considering evidence beyond the four-
corners of the Dominican Republic legislation.
40. The Dominican Republic observes that the Pane l considered the evidence adduced by the
Dominican Republic to rebut the charges raised by Honduras that the bond requirement was
inconsistent with Article III:4 of the GATT 1994. The Dominican Republic submits that Honduras
failed to present any evidence to show that the bond requirement did, in fact, alter the conditions of
competition in the relevant market. The Panel was correct, therefore, to find that Honduras had failed
to establish that the bond requirement accords less favourable treatment to imported cigarettes. The
Panel properly found that the bond requirement does not create a disincentive to import cigarettes;
that the bond requirement secures the payment of tax liabilities for imported cigarettes; and that a
bond for a fixed amount can secure the payment of a va riable tax liability and s till be consistent with
Article III:4 of the GATT 1994.
2. Article XX(d) of the GATT 1994 and the Bond Requirement
41. In the event that the Appellate Body reverses the Panel's finding with respect to the bond
requirement under Article III:4 of the GATT 1994 and finds that the bond requirement accords less
favourable treatment to imported cigarettes, the Do minican Republic requests the Appellate Body to
find that the bond requirement is nevertheless justified as necessary to secure compliance with GATT-
consistent laws and regulations under Article XX(d) of the GATT 1994.

42. The Dominican Republic submits that Article XX(d) requires a two-step analysis. First, the
measure must be provisionally justified under Ar ticle XX(d). Secondly, it must comply with the
requirements of the chapeau to Article XX. The Dominican Republic says that its measure secures
compliance with its tax laws and regulations, and th at these tax laws and regulations are consistent
with the GATT 1994. The Dominican Republic refers to certain findings by the Panel, which, it
claims, substantiate these assertions. The Dominican Republic also argues that the bond requirement
is "necessary" to secure compliance with the tax laws and regulations of the Dominican Republic, in
the sense that it is "indispensable". Moreover, even if the Appellate Body were to find that the bond
requirement is not indispensable, an appropriate wei ghing and balancing of the four factors identified
for the analysis of necessity in Korea – Various Measures on Beef demonstrates that the measure in
question remains necessary in the sense of Article XX(d). The measure therefore satisfies the
requirements of Article XX(d) and is provisionally justified under that provision.
43. In addition, the Dominican Republic submits that its measure is not applied in a manner that
discriminates between countries where the same conditions prevail and that any alleged
discrimination is neither arbitrary nor unjustifiabl e. The Dominican Republic also submits that the
bond requirement is not applied in a manner that co nstitutes a disguised restriction on international
trade. Accordingly, in addition to being provisiona lly justified under paragraph (d) of Article XX, the
bond requirement also satisfies the conditions of the chapeau to Article XX. It therefore meets the
requirements of Article XX of the GATT 1994 and thus falls within the general exception provided by
that provision.
3. Article 11 of the DSU and the Panel's Consideration of the Bond
Requirement "As Such"
44. The Dominican Republic submits that the Panel made an objective assessment of the facts of
the case in addressing Honduras' "as such" claim ag ainst the bond requirement. It accordingly
requests the Appellate Body to reject Honduras' appeal in this regard.
45. The Dominican Republic submits that the Appella te Body has said it will interfere with a
panel's appreciation of the eviden ce before it only if it is satisfied that the panel "exceeded its
discretion" and, in effect, made an "egregious error". 37 It observes that Honduras has made a claim
against legislative provisions establishing the bond requirement "as such". Honduras' claim thus
focuses on the meaning of a municipal law of the Dominican Republic. In addressing the meaning of
municipal law, panels must examine the law as a ma tter of fact, taking into account the evidence as to
the meaning of the law presented by the parties. In ascertaining the meaning of a municipal law,

37Dominican Republic's appellee's submission, para. 23 (quoting Appellate Body Report, Canada –
Wheat Exports and Grain Imports, para. 186).

nothing precludes a panel from considering statem ents made by representatives of the responding
Member regarding that law; indeed, such statemen ts have been relied upon by panels (such as in
US – Section 301 Trade Act ) and the Appellate Body (for example, in US – Hot-Rolled Steel ) in the
past.
46. In this case, the Panel correctly treated the meaning of the Dominican Republic's municipal
law as a fact whose meaning was to be proved by evid ence. The Panel thus considered the text of the
legislation itself, as well as a letter from the Director-G eneral of Internal Taxes, the senior official of
the Dominican Republic responsible for administering the relevant matter at the municipal level.
Honduras did nothing to rebut the contents of the letter, other than to claim it was inadmissible as
evidence.
47. The Dominican Republic contests Honduras' as sertion that the letter from the Director-
General of Internal Taxes is inconsistent with th e wording of Article 376 of the Tax Code. Nothing
on the face of the law precludes the bond from being applied to fiscal obligations other than the
Selective Consumption Tax. The Dominican Repub lic also disagrees with the position of Honduras
that the letter should have been disregarded as it was somehow tainted because it came from an
official of the Dominican Republic. The Domini can Republic says that a Member is obliged under
Article 3.10 of the DSU to engage in dispute settlement "in good faith". Representations by a
Member made during dispute settlement therefore ca nnot be presumed to be tainted, merely because
they are made in dispute settlement.
4. The Timing of Payment of the Selec tive Consumption Tax and the Panel's
Terms of Reference
48. The Dominican Republic argues that the Panel wa s correct in concluding that the timing of
the payment of the Selective Consumption Tax, as a separate claim, was outside the terms of
reference of the Panel. The Dominican Republic no tes that the timing of payment of the Selective
Consumption Tax was not addressed in Honduras' request for the establishment of the Panel; nor was
it addressed in Honduras' first written submission to th e Panel. Rather, it was mentioned for the first
time in a single paragraph of Honduras' second writte n submission to the Panel. According to the
Dominican Republic, the Panel did not overlook the di stinction between claims and arguments. The
Panel was well aware of this dis tinction and correctly distinguishe d between the argument made by
Honduras in support of its legal claim that the bond re quirement was inconsistent with Article III:4 of
the GATT 1994, and its veiled claim that the differe nce in timing of the payment of the Selective
Consumption Tax accorded less favourable treatment to importers.

E. Arguments of the Third Participants
1. China

(a) The necessity analysis under Article XX(d) of the GATT 1994 in
relation to the tax stamp requirement
49. China notes that a party invoking Article XX(d) of the GATT 1994 must demonstrate that its
measure is "necessary" to secure compliance with GATT-consistent laws or regulations. China
synthesizes the jurisprudence of the Appellate Body on this issue as suggesting that "necessary" in
this context should mean "almost indispensable". 38 China also observes that the Appellate Body has
set out a number of factors that need to be cons idered in assessing whether a measure is "necessary".
These include three factors identified in Korea – Various Measures on Beef : the contribution of the
measure to the ends pursued; the importance of the interests protected; and the trade impact of the
measure. There is also another factor from earlier jurisprudence, which the Appellate Body described
as "encapsulating" these three factors, namely, the existence of reasonably available alternatives to the
impugned measure that are consistent, or less incons istent, with other GATT provisions. In China's
view, the three factors identified in Korea – Various Measures on Beef have not replaced the
traditional test. However, the application of all re levant factors may have an impact on the burden of
proof: if a party invoking Article XX(d) demonstrat es that its measure stands up with respect to the
first three factors, then it has established a prima facie case that Article XX(d) applies; the burden
then shifts to the other party to rebut this presump tion. This could be achieved by demonstrating the
existence of a GATT-consistent alternative measure.
(b) Article III:4 of the GATT 1994 and the bond requirement
50. With respect to Honduras' appeal regarding th e application of Article III:4 of the GATT 1994
to the bond requirement, China submits that less fa vourable treatment in the sense of Article III:4 is
judged by reference to modification of the conditions of competition. The term "no less favourable"
is unqualified and is thus not subject to a de minimis exception; any less favourable treatment is
inconsistent with Article III:4. China also notes that formal equality of treatment is not sufficient to
show equally favourable treatment if it is demonstrated that, in pr actice, less favour able treatment
results.

38China's third participant's submission, para. 6.

2. European Communities
(a) The necessity analysis under Article XX(d) of the GATT 1994 in
relation to the tax stamp requirement
51. The European Communities considers that the Pa nel was correct to find that the tax stamp
requirement was not justified by the provisions of Article XX(d) of the GATT 1994. The European
Communities submits that the Panel properly applie d the test outlined by the Appellate Body in
Korea – Various Measures on Beef for determining whether a measure is "necessary" in terms of
Article XX(d). The European Communities argues that the Panel correctly took into account the
importance of the common interest served by the tax stamp requirement and the contribution of the
tax stamp requirement to the objective pursued. The European Communities questions the Panel's
assumption that the measure in question had no "intense restrictive effects on trade"
39; however,
given that the Panel properly weighed the other relevant considerations—in particular the existence of
alternative measures—the European Communities considers that this assumption did not affect the
Panel's ultimate conclusion. The European Commun ities agrees with the finding of the Panel that
less-trade restrictive alternatives to the tax stam p requirement were available to the Dominican
Republic. The European Communities notes that the sale of tax stamps abroad is a commonly used
practice. It submits that the risk of forgery is minimal and that implementation of this measure would
not raise implementation difficulties. Furthermore, such a measure would inevitably be less-trade
restrictive. Accordingly, the European Commun ities maintains that the Panel did not err in its
analysis of the tax stamp requirement under Article XX(d) of the GATT 1994.
(b) Article III:4 of the GATT 1994 and the bond requirement
52. The European Communities also su bmits that the Panel was correct in finding that the fees
incurred as a result of the bond requirement did not r esult in "less favourable treatment" for importers
in the sense of Article III:4 of the GATT 1994. The European Communities notes that the fixed
amount of the bond accords formally equal treatment to importers and domestic producers. The
question whether it nevertheless results in de facto discrimination requires an analysis of the facts of
the case to determine whether the measure alters the conditions of competition. The European
Communities recalls that the Panel noted that the co sts entailed by the bond requirement were so low
as to be unlikely to adversely affect the conditions of competition prevailing in the marketplace. As a
matter of principle, the European Communities agre es with this analysis; conditions of competition
are not affected by a marginal, negligible differen ce in costs. The European Communities also points
to the principle elaborated in paragraph 1 of Artic le III, which indicates that internal measures should

not be applied so as to afford protection to dom estic production. A measure with formally equal
treatment and minimal or negligible practical conse quences is unlikely to be applied so as to afford
protection.
(c) Article 11 of the DSU and the Panel's consideration of the bond
requirement "as such"
53. The European Communities submits that the Panel made an objective assessment of
Honduras' claims regarding the bond requirement, cons istent with the requirements of Article 11 of
the DSU. According to the European Communities, the matter before the Panel was defined, in the
first place, by Honduras' request for the establishment of the Panel. Honduras' panel request referred
not only to the legislation establishing the bond requi rement, but also to "practices" under the bond
requirement. Accordingly, it was appropriate for th e Panel to consider such practices in addressing
Honduras' claims against the bond requirement. Th e European Communities t hus disagrees with the
position of Honduras regarding the import of India – Patents (US) . Contrary to the position of
Honduras, India – Patents (US) , in which the panel reviewed practices as well as the underlying
legislation, would tend to confirm the approach of th e Panel in this case. Indeed, it is consistent with
the object and purpose of the DSU for a panel to take into account all relevant elements for its
determinations regarding the matter before it.
3. United States

(a) The necessity analysis under Article XX(d) of the GATT 1994 in
relation to the tax stamp requirement
54. The United States argues that the Panel's interpretation of the term "necessary" in
Article XX(d) adds to and diminishes WTO Memb ers' rights and obligations under the GATT 1994.
The United States raises three concerns with the Pa nel's interpretation. First, the United States
considers incorrect the notion that Article XX(d) requires a Member to select a less GATT-
inconsistent alternative where no GATT-consistent alternative is available. There is nothing to justify
use of a concept of degrees of inconsistency in th e application of Article XX(d). Moreover, such a
concept would be difficult to administer and is logically incoherent. In this case, the Panel
characterizes as "less GATT-inconsistent" possibl e alternative measures that are "less trade-
restrictive".40 In so doing, the Panel impermissibly impor ts into Article XX(d) a requirement that a
Member use a less-trade restrictiv e measure, if one is available. There is no basis in the GATT 1994
for doing so. Secondly, the United States submits that the Panel has distorted the meaning of
"necessary" in Article XX(d) by equating it with "s ufficient", implying that a measure that does not

40United States' third participant's submission, para. 7.

succeed in securing compliance with a Member's desired level of protection is not "necessary".
Thirdly, the United States argues that a measure th at would involve continuation of a risk that a
Member seeks to avoid cannot be a reasonably ava ilable alternative to an impugned measure. The
United States emphasizes the right of Members to determine their own desired level of protection.
(b) Article III:4 of the GATT 1994 and the bond requirement
55. The United States also suggests that, in its appeal regarding the application of Article III:4 of
the GATT 1994 to the bond requirement, Honduras mischaracterizes the standard for finding
"treatment no less favourable" under Article III:4. The United States submits that the Panel properly
articulated the relevant test as one based on the conditions of competition prevailing in the market,
and correctly found that the differences in the pe r-unit costs of the bond were not in themselves
sufficient to demonstrate that importers received l ess favourable treatment. In addition, according to
the United States, throughout its appeal, Honduras alleges that the Panel improperly applied
Article III:4 because it took into account the market pe rformance of importers in the past years as the
decisive element, rather than the bond itself. However, although Honduras criticizes the Panel for
examining the market performance of importers, acc ording to the United States, it is Honduras that
improperly seeks a finding of less favourable treatment on this basis.
III. Issues Raised in this Appeal
56. The following issues are raised in this appeal:
(a) whether the Panel erred in finding that th e tax stamp requirement is not justified
under Article XX(d) of the GATT 1994, based on its interpretation and application of
the term "necessary" in that provision;
(b) whether the Panel failed to make an objective assessment of the facts of the case, as
required by Article 11 of the DSU, in its examination of Exhibits DR-8 and DR-29;
(c) whether the Panel erred in finding that Honduras failed to establish that the bond
requirement accords less favourable treatme nt to imported cigarettes than that
accorded to like domestic products, in a manne r inconsistent with Article III:4 of the
GATT 1994;
(d) whether the Panel failed to make an objec tive assessment of the matter before it, as
required by Article 11 of the DSU, in its c onsideration of Honduras' claim against the
bond requirement "as such"; and,

(e) whether the Panel erred in finding that H onduras' contentions regarding the timing of
payment of the Selective Consumption Tax represented a separate claim outside the
Panel's terms of reference.
IV. The Necessity Analysis under Article XX(d) of the GATT 1994 in relation to the Tax
Stamp Requirement
57. The Dominican Republic requires that tax stamps be affixed to cigarette packets in the
territory of the Dominican Republic under the supervision of the Dominican Republic's tax authorities
(the "tax stamp requirement"). The Panel found that the tax stamp requirement is inconsistent with
the national treatment obligation set out in Article III:4 of the GATT 1994.
41 According to the Panel,
although the tax stamp requirement is applied in a formally equal manner to domestic and imported
cigarettes, it modifies the conditions of competition in the marketplace to the detriment of imports.
The Panel found that the tax stamp requirement resu lts in additional processes and costs for imported
products, and leads to imported cigarettes being pr esented to final consumers in a less appealing
manner. Having found that the tax stamp requireme nt was inconsistent with Article III:4 of the
GATT 1994, the Panel then examined the Dominica n Republic's argument, under Article XX(d) of
the GATT 1994, that the tax stamp requirement is necessary to secure compliance with the Dominican
Republic tax laws and regulations, to fight tax evasi on, and to prevent smuggling of cigarettes. The
Panel concluded that the Dominican Republic had faile d to establish that the tax stamp requirement is
justified under Article XX(d) of the GATT 1994.42
58. On appeal, the Dominican Republic limits its challenge to the Panel's finding that the tax
stamp requirement is not justif ied under Article XX(d) of the GATT 1994. The Dominican Republic
does not appeal the Panel's finding that the tax stam p requirement is inconsistent with the national
treatment obligation set out in Article III:4 of th e GATT 1994. Therefore, we need not express any
view on the finding under Article III:4.
59. In considering the Dominican Republic's argume nt under Article XX(d), the Panel began its
analysis by assuming that the tax laws and regu lations to be enforced through the tax stamp
requirement are not inconsistent with the provisi ons of the GATT 1994. The Panel then examined
whether the tax stamp requirement is "necessary" to secure compliance with those laws and
regulations. The Panel acknowledged that "the co llection of tax revenue (and, conversely, the
prevention of tax evasion) is a most import ant interest" for the Dominican Republic.43 The Panel also

41Panel Report, paras. 7.198 and 8.1(e).
42Ibid., paras. 7.232, 7.233 and 8.1(e).
43Ibid., para. 7.215.

said that "the measure has not had any intense restrictive effects on trade". 44 The Panel found,
however, no supporting evidence "that there is a causal link between allowing stamps to be affixed
abroad and the forgery of tax stamps." 45 According to the Panel, the requirement of affixing tax
stamps in the Dominican Republic and under the su pervision of the Dominican Republic authorities
"would only serve to guarantee that those tobacco produc ts that enter legally into the country and go
through the proper customs procedures will carry authen tic tax stamps as a proof that the appropriate
tax has been paid." 46 The Panel added that the tax stamp re quirement, "in and of itself, would not
prevent the forgery of tax stamps, nor smuggling and tax evasion." 47 In the opinion of the Panel, the
Dominican Republic did not discharge its duty to prove why other reasonably available GATT-
consistent or less GATT-inconsistent measures would not be able to achieve the level of enforcement
with regard to tax collection a nd cigarette smuggling that the Dominican Republic sought to attain
with the tax stamp requirement. 48 For the Panel, a reasonably available alternative to the tax stamp
requirement would be to provide secure tax stamps to foreign exporters. 49 In this light, the Panel
concluded that the tax stamp requirement is not "necessary" to secure compliance with the Dominican
Republic's tax laws and regulations. Accordingly, the Panel found that the tax stamp requirement is
not justified under Article XX(d) of the GATT 1994.50
60. The Dominican Republic claims that the Panel erred in interpreting and applying the term
"necessary" in Article XX(d) of the GATT 1994. The Dominican Republic relies mainly on the
Appellate Body Report in Korea – Various Measures on Beef , contending that, determining whether
a measure is "necessary" under Article XX(d), invol ves in every case a process of weighing and
balancing a series of factors. 51 According to the Dominican Republic, a panel must weigh and
balance the following four factors as part of the necessity analysis: (1) the trade impact of the
measure; (2) the importance of the interests protect ed by the measure; (3) the contribution of the
measure to the end pursued; and (4) the existence of alternative measures that a Member could
reasonably be expected to employ. 52 Thus, "the Panel improperly in terpreted and applied the term

44Panel Report, para. 7.215.
45Ibid., para. 7.226.
46Ibid.
47Ibid.
48Ibid., para. 7.228.
49Thus, tax stamps would be affixed on cigarette packets in the course of the foreign manufacturer's
production process and prior to importation into the Dominican Republic.
50Given its conclusion that the tax stamp requirement is not "necessary" under Article XX(d), the Panel
considered that it did not need to analyze consistency of the measure with the chapeau of Article XX.
51Dominican Republic's appellant's submission, para. 30 (referring to Appellate Body Report, Korea –
52Ibid., para. 31.

'necessary' because it failed to examine fully all the factors relevant to determining whether a measure
is 'necessary' under Article XX(d), including weighing and balancing them, as required by
Article XX(d)."
53 The Dominican Republic adds that a prope r weighing and balancing of the relevant
factors leads to the conclusion that the tax stamp requirement is "necessary" within the meaning of
Article XX(d) of the GATT 1994. In particular, the Dominican Republic contends that affixation of
tax stamps in the presence of a tax inspector cont ributes more to the prevention of tax evasion than
affixation abroad, without the presence of a tax in spector. The Dominican Republic underlines that
affixing the stamp abroad would make it possible for cigarettes smuggled into the Dominican
Republic to be sold as stamped, while evading im port taxes. This would be prevented by the
requirement to affix stamps in the Dominican Re public in the presence of a tax inspector, unless the
stamp is forged. Thus, for the Dominican Repub lic, the tax stamp requirement not only seeks to
ensure the authenticity of tax stamps, but also "contributes importantly to reducing the volume of
smuggled cigarettes and increasing the volume of cigarettes bearing 'authentic tax stamps'."
54
61. Regarding the question of the existence of alternative measures that a Member could
reasonably be expected to employ in place of the GATT-inconsistent measure, the Dominican
Republic submits that the Panel erred in concluding that an a lternative measure is reasonably
available. According to the Dominican Republic , the alternative identified by the Panel—providing
secure tax stamps to foreign exporters—is not a reasonably available alternative because it would
increase the risk of smuggling and tax evasion, as compared with the tax stamp requirement, and,
therefore, would be less likely to secure the goals pursued by the tax stamp requirement.
62. For Honduras, the Dominican Republic's contention that the Panel did not properly weigh and
balance the relevant factors in its analysis under Article XX(d) should be rejected. Honduras
maintains that "the Panel properly set out and applie d the appropriate factors in its assessment of the
measure under Article XX(d)."55 Honduras adds that "the Panel did examine the relevant factors in its
assessment of whether there were less trade rest rictive alternative measures that the Dominican
Republic could have employed."56

53Dominican Republic's appellant's submission, para. 30.
54Ibid., para. 45.
55Honduras' appellee's submission, para. 37.
56Ibid., para. 65.

63. At the oral hearing, Honduras drew attenti on to the fact that, on 25 October 2004, the
Dominican Republic enacted a new decree modifying the tax stamp requirement to allow tax stamps
to be affixed abroad at the time of production. 57 The Dominican Republic confirmed that it had
enacted the new decree. Honduras stated that, pursu ant to this new measure, it had recently exported
to the Dominican Republic a shipment of cigarettes with stamps attached at the factory. Honduras
expressed surprise that, in these circumstances, the Dominican Republic continues to maintain that the
only measure reasonably available to it is affixa tion of tax stamps within the Dominican Republic,
under the supervision of the tax authorities. Both participants nevertheless requested the Appellate
Body to rule on whether the original measure is justified under Article XX(d) of the GATT 1994.
64. We begin our consideration of Article XX(d) by noting that the analysis of a measure under
Article XX is two-tiered:
In order that the justifying protec tion of Article XX may be extended
to it, the measure at issue must not only come under one or another of
the particular exceptions - para graphs (a) to (j) - listed under
Article XX; it must also satisfy the requirements imposed by the
opening clauses of Article XX. The analysis is, in other words, two-
tiered: first, provisional justification by reason of characterization of
the measure under XX(g); second, further appraisal of the same
measure under the introductory clauses of Article XX.
58
65. In Korea – Various Measures on Beef , the Appellate Body explained the analysis to be
undertaken in considering the justification of a measure under paragraph (d) of Article XX:
For a measure ... to be justified pr ovisionally under pa ragraph (d) of
Article XX, two elements must be 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.
59
66. The Appellate Body also explained that determ ining whether a measure is "necessary" within
the meaning of Article XX(d):

57The new decree was enacted after the issuance of the Panel Report to the parties on 20 October 2004.
We also referred to the enactment of the new decree in paragraph 14 of this Report.
58Appellate Body Report, US – Gasoline, p. 22, DSR 1996:I, 3, at 20.
59Appellate Body Report, Korea – Various Measures on Beef, para. 157.

... involves in every case a process of weighing and balancing a series
of factors which prominently include the contribution made by the
compliance measure to the enforcement of the law or regulation at
issue, the importance of the common interests or values protected by
that law or regulation, and the accompanying impact of the law or
regulation on imports or exports.
60
67. The Appellate Body also referred to the GATT panel report in US – Section 337, in particular
to the statement that a Member's inconsistent measure cannot be deemed to be necessary "if an
alternative measure which it could reasonably be expected to employ and which is not inconsistent
with other GATT provisions is available to it."61
68. In EC – Asbestos , the Appellate Body considered whet her the measure challenged in those
proceedings was "necessary" to protect public hea lth within the meaning of Article XX(b) of the
GATT 1994. The Appellate Body stated that "i n determining whether a suggested alternative
measure is 'reasonably available', several factors mu st be taken into account, besides the difficulty of
implementation." 62 Relying on its Report in Korea – Various Measures on Beef, the Appellate Body
reiterated, in the context of Article XX(b), that "one aspect of the 'weighing and balancing process …
comprehended in the determination of whether a WT O-consistent alternative measure' is reasonably
available is the extent to which the alternative measure 'contributes to the realization of the end
pursued'."63 Another factor to be taken into account in determining whether an alternative measure is
reasonably available is the importance of the interests or values pursued: " '[t]he more vital or
important [the] common interests or values' pursued, the easier it would be to accept as 'necessary'
measures designed to achieve those ends." 64
69. In US – Gambling, the Appellate Body considered the "necessity" test in the context of
Article XIV of the General Agreement on Trade in Services. The Appellate Body confirmed that an
assessment of the "necessity" of a measure involv es a weighing and balancing of "the 'relative
importance' of the interests or values furthered by the challenged measure", along with other factors,
which will usually include "the contribution of the measu re to the realization of the ends pursued by it

60Appellate Body Report, Korea – Various Measures on Beef, para. 164.
63Ibid.,. para. 172 (quoting Appellate Body Report, Korea – Various Measures on Beef , paras. 166
and 163).
64Ibid., para. 172 (quoting Appellate Body Report, Korea – Various Measures on Beef, para. 162).

[and] the restrictive impact of th e measure on international commerce." 65 The Appellate Body went
on to explain that:
A comparison between the challenged measure and possible
alternatives should then be undertaken, and the results of such
comparison should be considered in the light of the importance of the
interests at issue. It is on the basis of this "weighing and balancing"
and comparison of measures, taking into account the interests or
values at stake, that a panel determines whether a measure is
"necessary" or, alternatively, whether another, WTO-consistent
measure is "reasonably available".
66
70. The Appellate Body Reports in Korea – Various Measures on Beef , EC – Asbestos and
US – Gambling indicate that, in the assessment of whethe r a proposed alternative to the impugned
measure is reasonably available, factors such as the trade impact of the measure, the importance of the
interests protected by the measure, or the contribut ion of the measure to the realization of the end
pursued, should be taken into account in the analys is. The weighing and balancing process of these
three factors also informs the determination whethe r a WTO-consistent alternative measure which the
Member concerned could reasonably be expected to employ is available, or whether a less WTO-
inconsistent measure is reasonabl y available. Furthermore, in US – Gambling , the Appellate Body
indicated:
An alternative measure may be found not to be "reasonably
available", however, where it is merely theoretical in nature, for
instance, where the responding Member is not capable of taking it, or
where the measure imposes an undue burden on that Member, such
as prohibitive costs or substantial technical difficulties. Moreover, a
"reasonably available" alternative measure must be a measure that
would preserve for the responding Member its right to achieve its
desired level of protection with respect to the objective pursued ... .
67
71. In assessing whether a WTO-consistent measure was reasonably available, the Panel in the
present case discussed the factors identified by the A ppellate Body in previous appeals, namely, the
importance of the interests protected by the tax stamp requirement, its trade impact and its
contribution to the realization of the end pursued. As regards the first factor, "the Panel [did] not
disagree with the Dominican Republic's argument that tax stamps may be a useful instrument to
monitor tax collection on cigarettes and, conversely, to avoid tax evasion."
68 The Panel also
recognized that "the collection of tax revenue (and, conversely, the prevention of tax evasion) is a

66Ibid., para. 307.
67Ibid., para. 308.
68Panel Report, para. 7.217.

most important interest for any country and particularly for a developing country such as the
Dominican Republic."
69 With respect to the trade impact of the measure, the Panel noted that the tax
stamp requirement did not prevent Honduras from exporting cigarettes to the Dominican Republic and
that its exports had increased significantly over recent years. 70 Accordingly, the Panel assumed "that
the measure has not had any inten se restrictive effects on trade." 71 As far as the third factor is
concerned, the Panel noted the Dominican Republic's claim that "the tax st amp requirement secures
compliance with its tax laws and regulations gene rally, and more specifically with the provisions
governing the Selective Consumption Tax."72 The Panel, however, was of the view that the tax stamp
requirement was of limited effectiveness in pr eventing tax evasion and cigarette smuggling.
According to the Panel, requiring that tax stamps be affixed in the Dominican Republic under the
supervision of the tax authorities "in and of itself, would not prevent the forgery of tax stamps, nor
smuggling and tax evasion." 73 In this respect, the Panel indicated that other factors, such as security
features incorporated into the tax stamps, or poli ce controls on roads and at different commercial
levels, would play a more important role in preventing forgery of tax stamps, tax evasion and
smuggling of tobacco products. 74 Having considered the importance of the interests protected by the
tax stamp requirement, its trade impact, and its cont ribution to the realization of the end pursued, we
are of the view that the Panel conducted an appropri ate analysis, following the approach set out in the
Appellate Body Reports in Korea – Various Measures on Beef and in EC – Asbestos, and affirmed
in US - Gambling. We see no error in the approach taken by the Panel or in the results of its analysis.
We note that, in this particular case, the Panel's conclusion concerning the contribution of the measure
to the realization of the end pursued is based on findings of fact (limited effectiveness of the tax stamp
requirement in preventing forgery, smuggling and ta x evasion; greater effectiveness and efficiency of
measures such as security features incorporated into the tax stamps or police controls) that have not
been challenged under Article 11 of the DSU and, therefore, fall outside the scope of appellate review.
72. Having assessed the importance of the interests protected by the tax stamp requirement, its
trade impact, and its contribution to the realizati on of the end pursued, the Panel also considered
whether a WTO-consistent alternative measure is reasonably available to secure compliance with the
Dominican Republic's tax laws and regulations appropriate to the level of enforcement pursued by the
Dominican Republic. In the light of its analysis of the relevant factors, especially the measure's
contribution to the realization of the end pursued, the Panel opined that the alternative of providing

69Panel Report, para. 7.215.
70Ibid.
71Ibid.
72Ibid., para. 7.210.
73Ibid., para. 7.226.
74Ibid.

secure tax stamps to foreign exporters, so that tho se tax stamps could be affixed on cigarette packets
in the course of their own production process, prior to importation, would be equivalent to the tax
stamp requirement in terms of allowing the Domi nican Republic to secure the high level of
enforcement it pursues with regard to tax coll ection and the prevention of cigarette smuggling. 75 The
Panel gave substantial weight to its finding that th e tax stamp requirement is of limited effectiveness
in preventing tax evasion and cigarette smuggling; in particular, it found "no evidence to conclude
that the tax stamp requirement secures a zero tolerance level of enforcement with regard to tax
collection and the prevention of cigarette smuggling." 76 We consider that the Panel conducted an
appropriate analysis, following the approach set out in Korea – Various Measures on Beef and in
EC – Asbestos, and affirmed in US - Gambling. We see no reason to disturb the Panel's conclusions
in respect of the existence of a reasonably available alternative measure to the tax stamp requirement.
73. In the light of these considerations, we uphold the Panel's finding, in paragraphs 7.232,
7.233 and 8.1(e) of the Panel Report, that the ta x stamp requirement is not "necessary" within the
meaning of Article XX(d) of the GATT 1994 and, th erefore, is not justified under Article XX(d) of
the GATT 1994.
74. The Dominican Republic requests us to complete the legal analysis under Article XX of the
GATT 1994 should we find that the Panel misinterpreted or misapplied the term "necessary" in
Article XX(d) of the GATT 1994. As we agree with the Panel's interpretation of the term "necessary"
and we uphold the Panel's finding that the tax st amp requirement is not "necessary" within the
meaning of Article XX(d) of the GATT 1994, th e contingency on which the Dominican Republic's
request is based does not arise and, therefore, there is no need for us to complete the legal analysis
under Article XX of the GATT 1994.
V. The Conformity of the Examination of Exhibits DR-8 and DR-29 with Article 11 of the
DSU
75. We turn next to consider the Dominican Republic 's claim on appeal that the Panel erred in its
appreciation of the evidence in Exhibits DR-8 and DR-29, such that it failed to make an objective
assessment of the facts as required by Article 11 of the DSU. According to the Dominican Republic,
this evidence relates to "tax evasion, smuggling, and forgery of tax stamps with respect to alcohol
products".
77 The Dominican Republic sought to demonstr ate, through Exhibits DR-8 and DR-29,

75Panel Report, para. 7.228.
76Ibid., para. 7.229.
77Dominican Republic's appellant's submission, para. 79.

"that, in the case of alcohol, a product in respect of which tax stamps can be affixed abroad: (a) there
is smuggling into the territory of the Dominican Republic; and (b) tax stamps are forged."
 78
76. Article 11 of the DSU requires that a panel, inter alia:
... make an objective assessment of th e matter before it, including an
objective assessment of the facts of the case and the applicability of
and conformity with the relevant covered agreements, and make such
other findings as will assist the DSB in making the recommendations
or in giving the rulings provided for in the covered agreements.
77. In EC – Hormones , the first appeal presenting an Article 11 challenge to a Panel's fact-
finding79, the Appellate Body identified the "duty to ma ke an objective assessment of the facts [as],
among other things, an obligation to consider the evidence presented to a panel and to make factual
findings on the basis of that evidence."80 The Appellate Body also observed in that appeal that the:
[d]etermination of the credibility and weight properly to be ascribed
to (that is, the appreciation of) a given piece of evidence is part and
parcel of the fact finding process and is, in principle, left to the
discretion of a panel as the trier of facts.
 81
78. The Appellate Body has consistently emphasized, since EC – Hormones , that, within the
bounds of their obligation under Article 11 to make an objective assessment of the facts of the case,
panels enjoy a "margin of discretion" as triers of fact. 82 Panels are thus "not required to accord to

78Dominican Republic's appellant's submission, para. 79.
79Prior to EC – Hormones, an Article 11 claim was raised on appeal in US – Wool Shirts and Blouses,
but that claim dealt solely with "whether Article 11 of the DSU entitles a complaining party to a finding on each
of the legal claims it makes to a panel". (Appellate Body Report, US – Wool Shirts and Blouses , p. 17,
DSR 1997:I, 323, at 338) As such, the claim did not ch allenge the panel's "assessment of the facts of the case".
In addition, in Canada – Periodicals, the appellant raised Article 11 when challenging the panel's reliance on a
"hypothetical example" to make a determination of "like products" under Article III:2 of the GATT 1994.
(Appellate Body Report, Canada – Periodicals, p. 5, DSR 1997:I, 449, at 452) The Appellate Body, however,
made no ruling as to the panel's compliance with Article 11. (Ibid., pp. 20-23, DSR 1997:I, 449, at 465-468)
81Ibid., para. 132.
82Appellate Body Report, EC – Asbestos, para. 161. See also, for example, Appellate Body Report, EC –
Tube or Pipe Fittings, para. 125; Appellate Body Report, EC – Bed Linen (Article 21.5 – India), paras. 170, 177,
and 181; Appellate Body Report, EC – Sardines , para. 299; Appellate Body Report, Korea – Alcoholic
Beverages, paras. 161-162; Appellate Body Report, Japan – Agricultural Products II, paras. 141-142; Appellate
Body Report, US – Wheat Gluten , para. 151; Appellate Body Report, Australia – Salmon , para. 266; and
Appellate Body Report, Korea – Dairy, para. 138.

factual evidence of the parties the same meaning and weight as do the parties" 83 and may properly
"determine that certain elements of evidence should be accorded more weight than other elements".84
79. Consistent with this margin of discretion, th e Appellate Body has recognized that "not every
error in the appreciation of the evidence (although it may give rise to a question of law) may be
characterized as a failure to make an objective assessment of the facts."
 85 When considering claims
under Article 11 of the DSU, the Appellate Body does not "second-guess the Panel in appreciating
either the evidentiary value of … studies or the c onsequences, if any, of alleged defects in [the
evidence]".86 Indeed:
[i]n assessing the panel's appreci ation of the evidence, we cannot
base a finding of inconsistency under Article 11 simply on the
conclusion that we might have r eached a different factual finding
from the one the panel reached. Rather, we must be satisfied that the
panel has exceeded the bounds of its discretion, as the trier of facts,
in its appreciation of the evidence.
 87
Where participants challenging a panel's fact-finding under Article 11 have fail ed to establish that a
panel exceeded the bounds of its discretion as the trier of facts, the Appellate Body has not interfered
with the findings of the panel.88
80. The Dominican Republic alleges that the Panel erred in its appreciation of Exhibits DR-8
and DR-29 because: (1) the Panel "misread" 89 a letter from the Direccíon General de Impuestos
Internos ("DGII") dated 6 April 2004 ("Memo DAT-No. 46", included in Exhibit DR-8) 90, confusing
the stamps of half a cent (discontinued) and the curre nt stamps of RD$0.50 in attributing to the half a
cent stamps the reasons why the RD$0.50 stamps are forged; (2) the Panel "misunderstood the

86Appellate Body Report, EC – Asbestos, para. 177 (quoting Appellate Body Report, Korea – Alcoholic
Beverages, para. 161).
88See, for example, Appellate Body Report, EC – Bed Linen (Article 21.5 – India) , para. 170;
Appellate Body Report, US – Carbon Steel , para. 142 (quoting Appellate Body Report, US – Wheat Gluten ,
para. 151).
89Dominican Republic's appellant's submission, para. 83. See also ibid., paras. 84-85.
90Apart from Memo DAT-No. 46, Exhibit DR-8 submitted by the Dominican Republic to the Panel
comprises a compilation of documents providing information on a batch of alcoholic beverages seized in a
commercial establishment in July 2001.

proposition for which Exhibit DR-8 was offered"
91; (3) the Panel "disregarded" 92 the evidence in
Exhibit DR-29 93; and (4) the Panel erred in concluding "that Exhibits DR-8 and DR-29 do not
establish a causal link between allowing stamps to be affixed abroad and forgery of tax stamps."94
81. As regards the first allegation of the Domini can Republic (misreading Memo DAT-No. 46),
we do not see in the Panel's treatment of Memo DAT-No. 46 any error that would amount to a
violation of Article 11 of the DSU. The Panel did not give "conclusive"
95 weight to Memo
DAT-No. 46 in considering whether forgery of tax st amps is possible, justifying its position on two
bases: first, Memo DAT-No. 46 does not definitely establish that the tax stamps referred to therein
were forged, as, in that letter, "the Department of Alcohol and Tobacco of the DGII explicitly states
that only the National Treasury would be in a posi tion to confirm whether a set of stamps were
forged"96; secondly, the seizure documented in Exhibit DR-8 occurred in the year 2001, whereas, in
Memo DAT-No. 46, "the doubts expressed about the stamps refer to the format of stamps since
2002."97 In our view, the approach followed by the Panel and its decision not to give "conclusive"
weight to Memo DAT-No. 46 fall within its margin of discretion as the trier of facts and are,
therefore, consistent with the obligations of panels set out in Article 11 of the DSU. We acknowledge
that the Panel, in its description of Memo DAT-No. 46, appears to have confused the stamps of half a
cent (discontinued) and the current stamps of RD$0. 50, in attributing to the half cent stamps details
suggesting forgery of the RD$0.50 stamps. However, th is did not play a role in the reasoning that led
the Panel not to give conclusive weight to Memo DA T-No. 46. Accordingly, we are of the view that
the Panel did not commit an error in the appreciati on of the evidence that "may be characterized as a
failure to make an objective assessment of the facts."98
82. The Dominican Republic also submits that the Panel "misunderstood the proposition for
which Exhibit DR-8 was offered 99, because "[t]he Panel ... incorr ectly focused on the relationship
between smuggling and forgery"100, whereas "Exhibit DR-8 was offered as evidence of (a) smuggling

91Dominican Republic's appellant's submission, para. 87.
92Ibid., para. 89.
93Exhibit DR-29 submitted by the Dominican Republic to the Panel contains information on a batch of
garlic and alcoholic beverages seized in March 2002.
94Dominican Republic's appellant's submission, para. 91.
95Panel Report, para. 7.223.
96Ibid.
97Ibid.
99Dominican Republic's appellant's submission, para. 87.
100Ibid., para. 88.

and, separately, (b) forgery of tax stamps of a product in respect of which the Dominican Republic
allows stamps to be affixed outside its territory." 101 In our view, the Panel did not act in a manner
inconsistent with Article 11 of the DSU in not fi nding that Memo DAT-No. 46 "adds any conclusive
elements as relate to the relationship between th e seizure of alcoholic beverages and the possible
forgery of tax stamps". 102 A panel does not act in a manner inc onsistent with Article 11 of the DSU
simply because it draws inferences from some of the evidence that do not coincide with the reason for
which a party adduced it.103
83. Thirdly, the Dominican Republic contends that, "[w]ith respect to Exhibit DR-29, the Panel
simply disregarded the evidence therein"104, but offers no reason in support of this assertion. We have
no reason to conclude that the Panel did not examine Exhibit DR-29. On the contrary, the Panel noted
that Exhibit DR-29 "contain[s] information on a ba tch of garlic and alcoholic beverages seized in
March 2002" 105, which suggests that the Panel did consid er the evidence therei n. The Dominican
Republic may object to the fact that the Panel did not ascribe as much weight to Exhibit DR-29 as the
Dominican Republic would have wished, but this ca nnot be characterized as a failure to make an
objective assessment of the facts as required by Article 11 of the DSU. As to the Dominican
Republic's assertion that the Panel re ferred to Exhibit DR-29 in the context of a statement it made on
the forgery of tax stamps, whereas Exhibit DR-29 was to serve the purpose of demonstrating that
alcoholic beverages are being smuggled, we observe that a panel does not act in a manner inconsistent
with Article 11 of the DSU if it draws inferences fro m some of the evidence that do not coincide with
the reason for which a party adduced it.
84. The Dominican Republic disagrees with the Pane l's position that Exhibits DR-8 and DR-29
do not establish a causal link between allowing stamps to be affixed abroad and forgery of tax stamps.
It contends that such a causal link exists, basing its contention on an inference it draws from evidence
of smuggling and forgery of tax stamps with respect to alcohol products.
106 However, a mere
divergence of views between a party and a panel on the inferences to be drawn from pieces of
evidence is not a sufficient ground to conclude that the Panel failed to "make ... an objective
assessment of the facts of the case". The Dominican Republic has not explained why the divergence

101Dominican Republic's appellant's submission, para. 88.
102Panel Report, para. 7.223.
104Dominican Republic's appellant's submission, para. 89.
105Panel Report, para. 7.224.
106The Dominican Republic made this clarification in response to our questioning at the oral hearing.
According to the Dominican Republic, Exhibits DR-8 and DR-29 relate to "tax evasion, smuggling, and forgery
of tax stamps with respect to alcohol products". (Dominican Republic's appellant's submission, para. 79)

of views between it and the Panel on the inferenc es to be drawn from Exhibits DR-8 and DR-29
would amount to a failure to "make ... an objective assessment of the facts of the case". Therefore, we
are of the opinion that the Panel did not act in a ma nner inconsistent with Article 11 of the DSU in
stating that it "finds no supporting evidence in Exhi bits DR-8 and DR-29 to the Dominican Republic's
assertion that there is a causal link between allowing stamps to be affixed abroad and the forgery of
tax stamps."
107
85. In sum, we conclude that the Panel did not fa il to comply with the obligations set out in
Article 11 of the DSU in respect of Exhibits DR-8 and DR-29. Accordingly, we find that the Panel
did not fail to make an objective assessment of the facts of the case, as required by Article 11 of the
DSU, in its appreciation of the evidence in Exhibits DR-8 and DR-29.
VI. Article III:4 of the GATT 1994 and the Bond Requirement
86. We now move to consider Honduras' appeal rega rding the application of Article III:4 of the
GATT 1994 to the requirement, imposed by the Domi nican Republic, that importers and domestic
producers of cigarettes post a bond to ensure payment of taxes (the "bond requirement"). The Panel
found that "the bond requirement is applied in an equal manner, both formally and in practice, to
domestic and imported cigarettes" 108, and that "Honduras has failed to establish that the bond
requirement ... accords less favourable treatment to imported cigarettes than th at accorded to the like
domestic products, in a manner inconsistent with Article III:4 of the GATT 1994."109
87. In reaching this conclusion, the Panel noted that the Dominican Republic's tax law imposes
the requirement to post a bond on both importers and domestic producers of cigarettes. 110 The Panel
rejected the argument of Honduras that the bond requi rement creates a disin centive against importing
cigarettes. The Panel reasoned that a local compa ny that intends to sell cigarettes in the Dominican
Republic has two options: either to buy from a do mestic producer or to buy from an importer. In
neither case would the local company need to post a bond, because the posting of a bond is requested
only from manufacturers and importers. 111 Honduras also argued that the bond requirement results in

107Panel Report, para. 7.226.
108Ibid., para. 7.310.
109Ibid., para. 7.311.
110Ibid., para. 7.234; the amount of the bond is RD$5 million for both importers and domestic
producers: Article 14 of Decree 79-03, Exhibit HOND-4 submitted by Honduras to the Panel. The Panel noted
that "[a]ccording to the ev idence provided by Honduras, in the specifi c case of the importer of cigarettes from
that country, the annual fee char ged by the insurance company that issued the bond was RD$84,000
(approximately US$1,873)". (Ibid., para. 7.299)
111Ibid., para. 7.282.

less favourable treatment for imported cigarettes because it serves to guarantee the payment of a tax
(the "Selective Consumption Tax") that is fully co llected upon importation. This is in contrast to
domestic cigarettes, where payment of the Selec tive Consumption Tax does not fall due until the
twentieth day of the month following that in which the cigarettes are sold. The Panel discarded this
argument, finding that "the evidence available does not support Honduras' assertion that there is no
liability that the bond requirement would serve to secure." 112 For the Panel, "the Dominican Republic
... demonstrated that its tax authorities have the le gal powers to reassess and eventually readjust the
applicable tax liabilities for a period of up to three years." 113 Thus, the importer may be asked to
make a new payment as a result of the readjustme nt, and the bond would serve to guarantee this
payment.114 Furthermore, the Panel relied on a writte n declaration from the Director-General of
Internal Taxes115 to find that, in the exercise of its enfo rcement powers, the Dominican Republic tax
authorities regard the bond as a guarantee of complian ce with internal tax obligations other than the
Selective Consumption Tax. 116 Finally, the Panel concluded that "Honduras has not presented
evidence to support its argument that the different cost per unit generated by complying with the bond
requirement has a detrimental impact on the comp etitive conditions for impor ted products in relation
to domestic products in the Dominican Republic cigarette market."117
88. On appeal, Honduras challenges the Panel's c onclusion that the bond requirement does not
accord less favourable treatment in terms of Artic le III:4 of the GATT 1994. Honduras submits that
the Panel failed to recognize that the bond requi rement imposes an "extra burden" on imported
products compared with domestic products. Acco rding to Honduras, the bond requirement secures
only the payment of the Selective Consumption Tax 118; whereas "an importer has to pay the amount
due for the Selective Consumption Tax prior to im portation and has to post a bond to secure a tax
liability that has already been discharged", "the domestic producer has up to 20 days following the
month in which the transaction was made to pay the Selective Consumption Tax.. 119 Honduras

112Panel Report, para. 7.292.
113Ibid.
114Ibid.
115Letter from the Director-General of Internal Taxes, Exhibit DR-12 submitted by the Dominican
Republic to the Panel.
116Panel Report, paras. 7.291 and 7.293.
117Ibid., para. 7.301.
119Ibid., para. 63.

contends that "this lack of symmetry between th e liabilities that bond secures ... constitutes an 'extra
hurdle' or 'extra burden' for imported products."
120
89. Honduras also submits that the Panel erred becau se it evaluated the current per-unit cost of
the bond fee for a specific importer in the light of its volume of imports for 2001-2003. 121 According
to Honduras, the Panel should have examined the conditions of competition established by the
legislation, rather than the market situati on in which the bond requirement was applied. 122 I n a n y
event, Honduras notes that the bond requirement wa s introduced in March 2003 and argues that the
per-unit cost determined by the Panel was incorrect , because it was based on the volume of imports in
the years 2000-2002, and on the cost charged by financial institutions for a bond fee in 2004. 123
Honduras adds that, as the Panel did not determine the per-unit cost for domestic producers, it could
not compare the per-unit costs between imported pro ducts and domestic like products. Accordingly,
Honduras argues, the Panel "did not have any basi s upon which to conclude that there was no less
favourable treatment being accorded to imports." 124 Finally, Honduras submits that the Panel erred
because it stated that the fact that a fixed expe nse (i.e., an expense not related to volume of
production) may lead to different per-unit costs among supplier firms is not "in itself ... enough to
conclude that the expense creates a less favourable treatment for imported products."125
90. The Dominican Republic contests Honduras' appeal of the Panel's findings regarding the bond
requirement under Article III:4 of the GATT 1994. Th e Dominican Republic contends that the Panel
correctly concluded that the bond requirement does not modify the conditions of competition to the
detriment of the imported cigarettes, and that it s hould not be presumed that any difference in the per-
unit cost of the bond modifies the conditions of competition and is inconsistent with Article III:4. The
Dominican Republic also submits that, in the even t the Appellate Body reverses the Panel's finding
regarding the bond requirement under Article III:4, the Appellate Body should nevertheless find that
the bond requirement is justified under Article XX(d) of the GATT 1994.
91. In Korea – Various Measures on Beef , the Appellate Body stated that, under Article III:4 of
the GATT 1994, the question of whether:

121Ibid., para. 33; Panel Report, paras. 7.299-7.300.
122Honduras' other appellant's submission, paras. 30-42.
123Ibid., para. 44.
124Ibid., para. 45.
125Panel Report, para. 7.300; Honduras' other appellant's submission, paras. 48-54.

... imported products are treated "less favourably" than like domestic
products should be assessed ... by examining whether a measure
modifies the conditions of competition in the relevant market to the
detriment of imported products.
126
92. In EC – Asbestos, the Appellate Body said the following about "less favourable treatment" as
embodied in Article III:4 of the GATT 1994:
The term "less favourable treatment" expresses the general principle,
in Article III:1, that internal regul ations "should not be applied … so
as to afford protection to domestic production". If there is "less
favourable treatment" of the group of "like" imported products, there
is, conversely, "protection" of the group of "like" domestic
products.
127
93. Therefore, the question that a panel must answer in an analysis under Article III:4 is whether
the measure at issue modifies the conditions of compe tition in the relevant market to the detriment of
imported products. In other words, a measure acco rds less favourable treatment to imported products
if it gives domestic like products a competitive adva ntage in the market over imported like products.
In this respect, we note that the bond requireme nt applies equally to importers and domestic
producers, and is fixed at RD $5 million (indexed for inflation) 128 for both importers and domestic
producers.129
94. Honduras acknowledges that the bond requirement is imposed equally on importers and
domestic producers, but nevertheless claims that it accords less favourable treatment to imported
cigarettes. Honduras argues that the bond require ment imposes an "extra burden" on imported
products compared with domestic products because, as far as importers are concerned, the secured tax
liability is non-existent or smaller than that of domestic producers. We rec ognize that a measure that
applies equally to importers and domestic producer s might, in some circumstances, nevertheless be
inconsistent with Article III:4 of the GATT 1994.130 In this case, however, the Panel did not rely in its
reasoning exclusively on the equal application of the bond requirement to importers and domestic
producers. The Panel rejected Honduras' argume nt "that the bond requirement results in a less

126Appellate Body Report, Korea – Various Measures on Beef, para. 137. (original emphasis)
128The bond of RD$5 million represents approximately US$110,000.
129Article 14 of Decree 79-03, Exhibit HOND-4 submitted by Honduras to the Panel.
130We note that in Korea – Various Measures on Beef, the Appellate Body stated:
A formal difference in treatment between imported and like domestic
products is ... neither necessary, nor sufficient, to show a violation of
Article III:4.
(Appellate Body Report, Korea – Various Measures on Beef, para. 137)

favourable treatment for imported cigarettes, because for those cigarettes there is no liability that the
bond requirement would serve to secure."
131 The Panel did so on the basis of two findings of fact.
First, the Panel found that the Dominican Republic tax authorities have the legal power to reassess
and eventually adjust the tax liabilities as they rela te to the payment of the Selective Consumption
Tax for a period of up to three years, and that the bond would serve to guarantee any payment
resulting from the reassessment.
132 Honduras does not make a claim under Article 11 of the DSU
against this finding of fact. Hence, we do not disturb it.
95. Secondly, the Panel found that, in the exerci se of their broad enforcement powers, the
Dominican Republic tax authorities may use the bond to enforce tax liabilities other than the Selective
Consumption Tax.133 Honduras challenges this finding of fact under Article 11 of the DSU. In the
next section of this Report, we expl ain why we reject this claim. As we find no reason to dispute the
Panel's findings of fact regarding the reassessment of the Selective Consumption Tax and the possible
uses of the bond, we consider that the Panel did not improperly reject Honduras' argument "that the
bond requirement results in a less favourable treat ment for imported cigarettes, because for those
cigarettes there is no liability that the bond requirement would serve to secure".
134
96. Nor do we accept Honduras' argument that th e bond requirement accords "less favourable
treatment" to imported cigarettes because, as the sales of domestic cigarettes are greater than those of
imported cigarettes on the Dominican Republic market , the per-unit cost of the bond requirement for
imported cigarettes is higher than for domestic products.
135 The Appellate Body indicated in Korea –
Various Measures on Beef that imported products are treated less favourably than like products if a
measure modifies the conditions of competition in the relevant market to the detriment of imported
products.136 However, the existence of a detrimenta l effect on a given imported product resulting
from a measure does not necessarily imply that this measure accords less favourable treatment to
imports if the detrimental effect is explained by factors or circumstances unrelated to the foreign
origin of the product, such as the market share of th e importer in this case. In this specific case, the
mere demonstration that the per-unit cost of th e bond requirement for imported cigarettes was higher
than for some domestic cigarettes during a particular period is not, in our view, sufficient to establish
"less favourable treatment" under Article III:4 of the GATT 1994. Indeed, the difference between the

131Panel Report, para. 7.294.
132Ibid., para. 7.292.
133Ibid., para. 7.293.
134Ibid., para. 7.294.
136Appellate Body Report, Korea – Various Measures on Beef, para. 137.

per-unit costs of the bond requirement alleged by Ho nduras is explained by the fact that the importer
of Honduran cigarettes has a smaller market share than two domestic producers137 (the per-unit cost of
the bond requirement being the result of dividing the cost of the bond by the number of cigarettes sold
on the Dominican Republic market). In this case, the difference between the per-unit costs of the
bond requirement alleged by Honduras does not de pend on the foreign origin of the imported
cigarettes. Therefore, in our view, the Panel w as correct in dismissing the argument that the bond
requirement accords less favourable treatment to im ported cigarettes because the per-unit cost of the
bond was higher for the importer of Honduran cigarettes than for two domestic producers.
97. Honduras also submits that the Panel erred becau se it evaluated the current per-unit cost of
the bond fee for the importer of Honduran cigarettes in the light of the volume of imports for
2001-2003.
138 Honduras considers that the Panel's calculati on is incorrect and that, in any event, it
should also have calculated the per-unit cost fo r domestic producers. In our view, the Panel
committed no error in seeking to make an illustrative evaluation of the per-unit cost of the bond fee
with respect to the importer of Honduran cigarettes. First, we note that the Panel performed this
exercise in response to Honduras' argument that the per-unit cost of the bond would be higher for the
importer of Honduran cigarettes than for two do mestic producers, because each of these domestic
manufacturers has a larger market share than that of the importer of Honduran cigarettes.139 Secondly,
the calculation was merely illustrative: the Panel wanted a rough estimate of what the bond
requirement meant for the importer of Honduran ci garettes in terms of cost. The Panel was not
seeking to compare this cost with the per-unit cost of the bond for the two domestic producers, as it
assumed, from the outset of its analysis, that the per-unit cost of the bond would be higher for the
importer as a result of its smaller market share. Although methodologies other than that followed by
the Panel might have produced more accurate resu lts of the per-unit cost, the Panel was merely
seeking to arrive at a rough estimate of the cost of the bond requirement to the importer and hence its
approach was adequate for its purposes. The calcu lation carried out by the Panel shows that the bond
requirement represents a very small cost for the impo rter—"equivalent to 0.2 per cent of the value of
cigarette imports made by the importer in the year 2003."140

137Before the Panel, Honduras suggested that "since two domestic manufacturers have a higher market
share than the importer of Honduran cigarettes, the per unit cost of the bond (the result of dividing the cost of
the bond by the number of cigarettes sold) would be higher for imported cigarettes than for domestic cigarettes."
(Panel Report, para. 7.295)
138Honduras' other appellant's submission, para. 33; Panel Report, paras. 7.299-7.300.
139Panel Report, para. 7.295.
140Ibid., para. 7.299.

98. In any event, the calculation on which Hondur as focuses is not the thrust of the Panel's
reasoning. For the Panel, a fixed expense, such as the annual fee for the bond, leads necessarily to
different per-unit costs among supplier firms, to the ex tent that these firms have different volumes of
production or volumes of sales. The Panel was of the view that "[a]s long as the difference in costs
does not alter the conditions of competition in the relevant market to the detriment of imported
products, that fact in itself should not be enough to conclude that the expense creates a less favourable
treatment for imported products."
141 We agree with the Panel, for the reasons explained above.142
99. Accordingly, Honduras has not shown that the Panel erred in finding that the bond
requirement does not accord less favourable treatment to imported cigarettes within the meaning of
Article III:4 of the GATT 1994. Therefore, we uphold the Panel's finding, in paragraphs 7.311,
7.316, and 8.1(f) of the Panel Report, that H onduras failed to establish that the bond requirement
accords less favourable treatment to imported cigare ttes than that accorded to like domestic products,
in a manner inconsistent with Article III:4 of the GATT 1994.
100. Finally, we observe that the Dominican Republic has argued that, in the event we reverse the
Panel's finding regarding the bond requirement un der Article III:4 of the GATT 1994, we should
nevertheless find that the bond requirement is just ified as necessary to ensure compliance with
GATT-consistent laws and regula tions under Article XX(d) of the GATT 1994. As we are of the
view that the Panel committed no error in reaching its finding under Article III:4, there is no need for
us to undertake an analysis of the Dominican Republic's defence under Article XX(d).
VII. Article 11 of the DSU and the Panel's Consideration of the Bond Requirement "As
Such"
101. We next consider Honduras' appeal, under Artic le 11 of the DSU, regarding the Panel's
assessment of Honduras' claim against the bond requirement. As discussed in the preceding section of
this Report, a key argument by Honduras regarding the inconsistency of the bond requirement with
Article III:4 of the GATT 1994 was that the bond requi rement served to guarantee liability only for
the Selective Consumption Tax and that such liability did not exist for importers, who must pay that
tax in full at the time of importation. 143 The Dominican Republic responded that, notwithstanding
payment of the Selective Consumption Tax at the time of importation, the bond nevertheless served to
secure payment of that tax in the ev ent of an adjustment of the taxpay ers' total liability at some point
in the future. The Dominican Republic also argued that:

141Panel Report, para. 7.300.
142Supra, para. 96 of this Report.
143See Panel Report, para. 7.284.

... although Article 376 of the Tax Co de appears to refer only to the
Selective Consumption Tax, in practice [the Dominican Republic]
tax authority treats the bond as a guarantee of compliance with other
internal tax obligations incumben t on the domestic producer and the
importer of cigarettes, including the tax on the transfer of goods and
services ("ITBIS") (Articles 335 through 360 of the Dominican
Republic Tax Code), and the income tax (Articles 267 through 334 of
the Dominican Republic Tax Code).
144
In support of this second argument, the Dominican Republic "presented a copy of a written
declaration to that effect from its Director General of Internal Taxes."145
102. The Panel accepted the arguments of the Domi nican Republic and found "that the evidence
available does not support Honduras's assertion that th ere is no liability that the bond requirement
would serve to secure."146 With respect to the Dominican Republic's assertion that the bond served to
guarantee liabilities other than the Selective Consumption Tax, the Panel stated:
While the Dominican Republic has ad mitted that there is no explicit
legal provision that authorizes the use of the bond as a guarantee of
compliance for internal tax obliga tions other than the Selective
Consumption Tax, the Panel finds th at there is no reason to question
its assertion that, in practice and in the exercise of its enforcement
powers, the Dominican Republic tax authorities regard the bond as a
guarantee of compliance for internal tax obligations such as the tax
on the transfer of goods and services ("ITBIS") and the income tax.
147
103. On this basis the Panel concluded:
For the reasons expressed above, the Panel is not convinced by
Honduras's argument that the bond re quirement results in a less
favourable treatment for imported cigarettes, because for those
cigarettes there is no liability that the bond requirement would serve
to secure.148
104. On appeal, Honduras claims that the Panel fa iled to make an objective assessment of the
matter before it, contrary to Article 11 of the DSU, in finding that the bond requirement secured
obligations other than the Selective Consumption Tax. Honduras emphasizes that its claims relate to
the bond requirement as such , independently from the application of that legislation in specific

144Panel Report, para. 7.285.
145Ibid., para. 7.291.
146Ibid., para. 7.292.
147Ibid., para. 7.293.
148Ibid., para. 7.294.

circumstances.
149 According to Honduras, the Panel did not, however, consider the legislative basis of
the bond requirement as such, but instead relied upon a letter from the Dominican Republic Director-
General of Internal Taxes (referred to as Exhibit DR-12) that contradicted the terms of the underlying
legislation. Honduras argues that, in analyzing its claim against the bond requirement as such, the
Panel "should have properly examined only ... the terms of the legislation and [should] not have relied
on the unsubstantiated views of one officer of an agency of the Dominican Republic."150
105. Article 11 of the DSU provides that a panel "should make an objective assessment of the
matter before it, including an objective assessment of the facts of the case and the applicability of and
conformity with the relevant covered agreem ents". The Appellate Body underlined in Chile – Price
Band System that "Article 11 obliges panels not only to make 'an objective assessment of the facts of
the case', but also 'an objective assessment of the matter before it'". 151 The "matter" is constituted by
both the facts of the case (and, in particular, the spec ific measures at issue) as well as the legal claims
raised.152 The corollary is that a panel is not entitled to make an assessment of a matter that is not
before it, for example, by making findings on a claim not raised by the complainant.153
106. Honduras' appeal engages both dimensions of the Panel's duty under Article 11. Honduras
asserts that the Panel failed to make an objective assessment of the matter before it by failing to
consider its claims against the bond requirement as such. In addition, Honduras contests the Panel's
treatment of the evidence before it and contends that the Pane l erred in considering evidence that
contradicted the terms of the legislation establishi ng the bond requirement. These two dimensions of
Honduras' appeal under Article 11 of the DSU are w oven together. The central thrust of Honduras'
appeal is that the eviden ce relevant to its "as such" claim ag ainst the bond requirement is limited to
the express terms of the legislation establishing that requirement.
107. In considering the first of the two dimensions of Article 11 raised in the appeal by Honduras,
we observe that the Appellate Body has consistently affirmed the right of WTO Members to challenge
legislation laying down norms or rules "as such", as well as their right to bring claims against the
application of such measu res in specific instances. 154 In our view, Honduras' claim before the Panel
regarding the bond requirement was clearly in the natu re of an "as such" clai m. Indeed, as Honduras

149Honduras' other appellant's submission, para. 14 (referring to Appellate Body Report, US –
Corrosion-Resistant Steel Sunset Review, para. 82).
150Ibid., para. 22.
151Appellate Body Report, Chile – Price Band System, para. 172.
152Appellate Body Report, Guatemala – Cement I, para. 73.
153Appellate Body Report, Chile – Price Band System, para. 173.
154See for example, Appellate Body Report, US – 1916 Act, paras. 60-61; and Appellate Body Report,
US – Corrosion-Resistant Steel Sunset Review, para. 82.

emphasizes on appeal, the bond requirement had not been applied to its cigarette exporter at the time
the Panel was established. 155 Having acknowledged this, however, we find no indication in the Panel
Report to support the view that the Panel failed to consider the bond requirement as such, and instead
undertook an analysis of a particular application or applications of the law.
108. We observe in this regard that the Panel said it would:
... consider the argument presented by Honduras in the sense that
there is no liability that the bond requirement would serve to secure,
as well as the two responses from the Dominican Republic: (i) that
the bond serves as a guarantee of tax liabilities in the event of latter
reassessments and adjustments of th e tax liability of taxpayers; and,
(ii) that it serves as a guarantee of compliance with internal tax
obligations other than the Selective Consumption Tax.
156
This statement indicates that the Panel intende d to undertake a general examination of the bond
requirement, and, in particular, the types of tax liab ilities that it serves to guarantee. In this statement,
the Panel foreshadows an analysis of the characteristics of the measure as such. There is no indication
in this statement that the Panel intended to consider particular applications of the measure at all.
109. After considering the issue, the Panel f ound that the bond requirement "would serve to
guarantee" payment of Selective Consumption Tax not paid by an importer at the time of importation,
in the event that the tax was reassessed and adjusted subsequent to importation. 157 In addition, the
Panel found no reason to question the assertion of the Dominican Republic authorities that they
"regard the bond as a guarantee of compliance for in ternal tax obligations such as the tax on the
transfer of goods and services ('ITBIS') and the income tax." 158 Neither of these findings refers to a
particular application of the bond requirement; rath er, each is in the nature of a general finding
regarding the obligations that the bond requirement , as such, secures. We therefore reject the
argument of Honduras insofar as it asserts that the Panel failed to examine the bond requirement as
such, as opposed to particular applications of the bond requirement.
110. We turn to the second dimension raised in the Article 11 appeal by Honduras and observe that
much of Honduras' argument focuses not on the distin ction between "as such" claims and "as applied"
claims, but rather on the nature of the evidence that will be relevant to an "objective assessment" of
an "as such" claim. Honduras thus contends that, because the "bond requirement stated
unambiguously that the tax obligation secured by the bond was the Selective Consumption Tax, and

155See Honduras' other appellant's submission, paras. 3 and 14.
156Panel Report, para. 7.286.
157Ibid., para. 7.292.
158Ibid., para. 7.293.

nothing more", the "Panel should have ... examined only ... the terms of the legislation and [should]
not have relied on the unsubstantia ted views of one officer of an agency of the Dominican
Republic."
159 In this way, a key basis for Honduras' a ssertion that the Panel failed to undertake the
objective assessment required by Article 11 of the DSU is that "the Panel did not undertake an
analysis of the legislation alone".160
111. Honduras' argument in this regard takes issue with the Panel's treatment of the evidence
before it. The Appellate Body has emphasized repeated ly that it is generally within the discretion of
the Panel to decide which evidence it chooses to ut ilize in making findings and that the Appellate
Body "will not interfere lightly with the panel's exercise of its discretion".161 We note also that, in US
– Carbon Steel, the Appellate Body indicated that the anal ysis of a Member's municipal law (such as
the bond requirement at issue in this dispute) requi res a panel to consider and weigh the evidence put
forward by the parties:
The party asserting that another party's municipal law, as such, is
inconsistent with relevant treat y obligations bears the burden of
introducing evidence as to the scope and meaning of such law to
substantiate that assertion. Such evidence will typically be produced
in the form of the text of the relevant legislation or legal instruments,
which may be supported, as appropriate, by evidence of the
consistent application of such la ws, the pronouncements of domestic
courts on the meaning of such laws , the opinions of legal experts and
the writings of recognized scholars. The nature and extent of the
evidence required to satisfy the burden of proof will vary from case
to case.
162
112. Against this background, and cons istent with the view expressed by the Appellate Body in
US – Carbon Steel , we agree with Honduras that consideration of the express wording of the text of
legislation establishing a measure is a fundamental elem ent of an assessment of that legislation. That
said, however, we see no merit in the proposition advan ced by Honduras that a panel must limit itself,
in considering a claim against legislation as such, exclusively to the wording of legislation itself.
Indeed, in US – Carbon Steel , the Appellate Body recognized that different types of evidence may
support assertions as to the meaning and scope of an impugned measure. A panel enjoys a margin of
discretion in weighing such evidence, commensurate with its role as trier of fact.

160Ibid., para. 23. (emphasis added)
161Appellate Body Report, US – Wheat Gluten, para. 151.
162Appellate Body Report, US – Carbon Steel, para 157. (footnote omitted)

113. In this case, the Panel took into account the legal provision establishing the bond requirement
as well as supplementary evidence, put forward by the Dominican Republic, in the form of a letter
from the Dominican Republic Direct or-General of Internal Taxes. 163 The letter from the Director-
General of Internal Taxes indicates that, in the exer cise of their broad powers to enforce the tax laws,
the Dominican Republic tax authorities may apply th e proceeds of the bond toward payment of taxes
other than the Selective Consumption Tax. 164 The position taken by the Director-General of Internal
Taxes in the letter relates to the scope of its enfo rcement powers with respect to the uses to which the
bond may be put; it is not an interpretative stat ement of Article 376 of the Tax Code. Honduras does
not appear to have put forward evidence that would call into question or otherwise rebut the
statements made in the letter of the Director-Gen eral of Internal Taxes concerning the scope of the
enforcement powers of the Dominican Republic tax au thorities. As the question of the possible uses
to which the bond might be put was a contentious issue before the Panel, and because Exhibit DR-12
provided information relevant to this issue, we do not think that the Panel exceeded its margin of
discretion in considering and giving some weight to that letter. Accordingly, we reject Honduras'
claim that the Panel failed to meets its obligations under Article 11 of the DSU in its consideration of
this issue.
114. Finally, we observe that the situation in this appeal is different from that prevailing in India –
Patents (US) , upon which Honduras relies. India – Patents (US) was a case in which certain
"administrative instructions" were held to be in sufficient evidence of India's compliance with its
obligations under the "mailbox" requirements of the TRIPS Agreement , whereas certain legislative
provisions were clearly inconsistent with those ob ligations. The panel and the Appellate Body were
not required in India – Patents (US) to interpret the words of the relevant legislation alone, in
isolation from other evidence, as Honduras would have had the Panel do in this case. Indeed, in
India – Patents (US) , there was a considerable amount of evidence available regarding the proper
interpretation of the express terms of the Indian Pa tents Act, which included, but was not limited to,
the text of the legislation itself. The panel in that case was thus able to balance India's assertion that
its "administrative instructions"—which required o fficials to disregard certain mandatory provisions
of the Patents Act—were sufficient to implement India's WTO obligations, against evidence that the
Indian government itself considered that legi slative amendment was necessary. Thus, in India –
Patents (US), the panel made full use of the record that was before it. Although the record in that case
appears to have been considerably richer than th e one available in these pr oceedings (which appears
to consist only of the text of the measure and the letter from the Director-General of Internal Taxes), it

163Exhibit DR-12 submitted by the Dominican Republic to the Panel.
164See Panel Report, para. 7.291 (referring to Exhibit DR-12 submitted by the Dominican Republic to
the Panel).

appears to us that the Panel in this case also cons idered all of the evidence that was before it.
Accordingly, although the facts of this case differ from India – Patents (US) , the panels in each case
followed the same—correct—approach in taking into account relevant factual information presented
by the parties.
115. For all these reasons, we find that the Panel conducted an objective assessment of Honduras'
claims regarding the bond requirement as such, consistent with Article 11 of the DSU.
VIII. The Panel's Treatment of Honduras' Contenti ons Regarding the Timing of Payment of
the Selective Consumption Tax
116. We turn, finally, to address Honduras' appeal in respect of the Panel's treatment of its
contentions regarding the timing of payment of the Selective Consumption Tax.
117. Before the Panel, Honduras claimed that th e bond requirement accorded treatment less
favourable to imported cigarettes than to domes tic cigarettes contrary to Article III:4 of the
GATT 1994. This was because, according to Hondu ras, the bond served to guarantee payment only
of the Selective Consumption Tax. In the case of domestic producers, the Selective Consumption Tax
is due on the twentieth day of the month following the taxable transaction. By contrast, in the case of
imports, the Selective Consumption Tax is payable immediately upon importation. Accordingly, in
the case of an importer, following importation there is simply no tax liability for the bond to secure.
165
Honduras submitted that this accorded less favourable treatment to imported cigarettes, compared to
domestic production because:
[t]his accords domestic producers the opportunity to earn interest
income on the Selective Consumption Tax for a period of 20-50
days. On the other hand, importers have to pay the Selective
Consumption Tax in advance. This entails either financing costs or
opportunity costs on the part of the importers.166
118. Ultimately, the Panel rejected Honduras' cl aim under Article III:4 of the GATT 1994 in
respect of the bond requirement on several grounds. It dealt with Honduras' contentions regarding the
absence of tax liabilities for importers secured by th e bond in two ways. First, it accepted the
submissions of the Dominican Republic that, notw ithstanding the payment of Selective Consumption
Tax at the time of importation, the bond neverthel ess served to secure tax obligations; these included
payment of the Selective Consumption Tax in the case of reassessment and adjustment. The Panel
also accepted that the tax authorities of the Dominican Republic regard the bond as security for

165See Panel Report, paras. 7.268 and 7.284.
166Ibid., para. 7.268.

payment of taxes other than the Selective Consumption Tax. 167 Secondly, with respect to the
possibility that domestic producers could earn inter est on the value of the tax liability during the
period between a taxable transaction and the moment when payment of the tax became due, while
importers were forced to bear financing costs in r espect of the tax paid at the time of importation, the
Panel found this matter to be distinct from H onduras' claims in respect of the bond requirement. 168 It
reasoned that, although the "claim on the bond requirem ent is part of the terms of reference of the
Panel", there was "nothing in the request for est ablishment of the Panel that would lead to the
conclusion that the Panel would be asked to make any finding regarding the difference in timing of
the payment of the Selective Consumption Ta x between domestic producers and importers." 169 The
Panel concluded, therefore:
... that Honduras's claim regarding the different costs for domestic
producers and importers arising from the time of payment of the
Selective Consumption Tax is not directly related with the bond
requirement and it is not within the Panel's terms of reference.
170
119. On appeal, Honduras submits that the Panel erre d in treating its contentions regarding the
timing of payment of the Selective Consumption Tax as a separate claim outside of the Panel's terms
of reference. Honduras submits that these contentio ns were simply arguments in support of its claim
that the bond requirement violated Article III:4 of the GATT 1994.171
120. We begin our analysis of this issue by observing that Article 6.2 of the DSU deals with the
request for the establishment of a panel and provides, in relevant part, as follows:
The request for the establishment of a panel shall be made in writing.
It shall indicate whether consultations were held, identify the specific
measures at issue and provide a brief summary of the legal basis of
the complaint sufficient to present the problem clearly.
In US – Carbon Steel, the Appellate Body noted that Article 6.2 sets forth:

167Panel Report, para. 7.293.
168Ibid., paras. 7.307-7.308.
169Ibid., para. 7.308.
170Ibid.
171Honduras' other appellant's submission, paras. 76-81.

... two distinct requirements, namely identification of the specific
measures at issue, and the provision of a brief summary of the legal
basis of the complaint (or the claims). Together, they comprise the
"matter referred to the DSB", which forms the basis for a panel's
terms of reference under Article 7.1 of the DSU.
172
The Appellate Body has consistently maintained that, where a panel request fails to identify
adequately particular measures or fails to specify a particular claim, then such measures or claims will
not form part of the matter covered by the panel's terms of reference.173
121. We also observe that the Appellate Body h as consistently distinguished between the claims
of a Member regarding the application of the various provisions of the WTO Agreement , and the
arguments presented in support of those claims. Claims, which are typically allegations of violation
of the substantive provisions of the WTO Agreement, must be set out clearly in the request for the
establishment of a panel. Arguments, by contr ast, are the means whereby a party progressively
develops and supports its claims. These do not need to be set out in detail in a panel request; rather,
they may be developed in the submissions made to the panel. 174
122. Against this background, the contentions of H onduras regarding the timing of payment of the
Selective Consumption Tax may be characterized in two ways. First, insofar as the contentions
regarding the timing of payment of the Selec tive Consumption Tax were made in support of
Honduras' assertion that importers bore no tax liability that would be secured by the bond
requirement, the contentions did—as Honduras submits on appeal—comprise arguments in support
of its claims regarding the bond requirement. Nothing prevented Honduras from raising such
arguments before the Panel, even though these ar guments were not set out in the panel request.
175
Secondly, insofar as Honduras' contentions represent an assertion that the timing of payment of the
Selective Consumption Tax resulted in a violation of Article III:4 of the GATT 1994 in itself, these
contentions comprised a separate claim that was not included in the panel request. For the reasons
that follow, however, regardless of the way in wh ich Honduras' contentions in this regard are
characterized, we see no error in the manner in which the Panel dealt with them.
123. In considering Honduras' claim under Article III:4 of the GATT 1994 regarding the bond
requirement, the question presented to the Pane l by Honduras was whether the bond requirement
secured any liability for importers and whether the ab sence of such liability created an imbalance in

172Appellate Body Report, US – Carbon Steel, para. 125. (original emphasis; footnote omitted)
173See, for example, Appellate Body Report, US – Carbon Steel, para. 171.
174Appellate Body Report, EC – Bananas III, para. 141.
175See Request for Establishment of a Panel by Honduras, WT/DS302/5, 9 December 2003.

the conditions of competition between imported and dom estic cigarettes. In addressing this issue, the
Panel noted, in paragraph 7.284 of the Panel Repor t, Honduras' argument that, with respect to
imported cigarettes, the Selective Consumption Tax is collected upon importation, whereas for
domestic cigarettes, the tax may be paid up to the tw entieth day of the month following that in which
the sale is made. The Panel then indicated it would:
... consider the argument presented by Honduras in the sense that
there is no liability that the bond requirement would serve to secure,
as well as the two responses from the Dominican Republic: (i) that
the bond serves as a guarantee of tax liabilities in the event of latter
reassessments and adjustments of th e tax liability of taxpayers; and,
(ii) that it serves as a guarantee of compliance with internal tax
obligations other than the Selective Consumption Tax.
176
124. In this way, the Panel Report shows that the Panel addressed Honduras' argument regarding
the timing of payment for the Selective Consumption Tax and the two responses from the Dominican
Republic as a whole. Ultimately, the Panel found th at importers do bear liabilities that are secured by
the bond. Thus, although the Panel did not consider specifically and in detail Honduras' contentions
regarding the timing of payment of the Selectiv e Consumption Tax in its analysis of the bond
requirement, it reached a view on the facts that was su fficient for it to reject Honduras' theory that the
bond secured no liabilities for importers. In that light, we do not believe that the Panel committed any
error in the manner in which it dealt with the timi ng of payment of the Selective Consumption Tax,
insofar as this was relevant to the question of whether the bond secures tax liability for importers.
The Panel did not overlook or ignore the contentions advanced by Honduras on this point. Rather, the
Panel Report reveals that the Panel bore these cons iderations in mind in the context of a global
analysis of the question whether the bond secures tax liability for importers.
125. In any event, we note that there is no oblig ation upon a panel to consider each and every
argument put forward by the parties in support of their respective cases, so long as it completes an
objective assessment of the matter before it, in accordance with Article 11 of the DSU.177
126. Nor do we see error in the Panel's finding that , insofar as Honduras' contentions represented a
separate allegation of inconsistency with Article III:4 of the GATT 1994, those contentions were
 claims in respect of a measure not specified in the request for the establishment of the Panel. We
also note, as pointed out by the Dominican Republic 178, that the issue of the timing of payment of the

176Panel Report, para. 7.286.
178Dominican Republic's appellee's submission, para. 79.

Selective Consumption Tax is not dealt with in the legislative provisions identified by Honduras in
connection with its claims against the bond requirement. In this light, we agree with the Panel that:
[w]hether imported cigarettes may be accorded less favourable
treatment than the like domestic produ cts due to the difference in the
time of payment of the Selective Consumption Tax is ... a different
issue from the bond requirement, although the two may be
tangentially related. Although the bond would serve as a guarantee
for the payment of the Selec tive Consumption Tax and other
liabilities, if there was any challenge against the conditions for
payment of the tax, that challenge would not have to do with the
bond requirement, but with the rules on the tax itself. The time of
payment of the Selective Consumption Tax is not part of the bond
requirement.
179
127. Accordingly, because such a challenge was not included in the panel request, we see no error
in the Panel's finding that such a matter was outside its terms of reference. For these reasons, we find
no error in the Panel's treatment of Honduras' conten tions regarding the timing of payment of the
Selective Consumption Tax.
IX. Findings and Conclusions
128. For the reasons set out in this Report, the Appellate Body:
(a) finds no error in the Panel's interpretation and ap plication of the term "necessary" in
Article XX(d) of the GATT 1994; finds it unnecessary to complete the analysis of
the Dominican Republic's defence under Article XX(d) of the GATT 1994; and,
consequently, upholds the Panel's finding, in paragraphs 7.232, 7.233 and 8.1(e) of
the Panel Report, that the tax stamp require ment is not justified under Article XX(d)
of the GATT 1994;
(b) finds that the Panel made an objective assessme nt of the facts of the case, as required
by Article 11 of the DSU, in its examination of Exhibits DR-8 and DR-29;
(c) upholds the Panel's finding, in paragraphs 7.311, 7.316, and 8.1(f) of the Panel
Report, that Honduras failed to establish that the bond requirement accords less
favourable treatment to imported cigarett es than that accorded to like domestic
products, in a manner inconsistent with Article III:4 of the GATT 1994;

179Panel Report, para. 7.307.

(d) finds that the Panel made an objective assessment of the matter before it, as required
by Article 11 of the DSU, in its consideration of Honduras' claim against the bond
requirement "as such"; and,
(e) finds no error in the Panel's treatment of Hondur as' contentions regarding the timing
of payment of the Selective Consumption Tax.
129. At the oral hearing, the participants agreed that the tax stamp regime as a whole had been
altered by a new decree in October 2004. 180 Both participants nevertheless requested the Appellate
Body to rule on the WTO-consistency of the origin al measure. In view of the above, the Appellate
Body recommends that the Dispute Settlement Body request the Dominican Republic to bring the tax
stamp requirement, found in this Report and in th e Panel Report as modified by this Report to be
inconsistent with the GATT 1994, into conformity with its obligations under that Agreement if, and to
the extent that, the said modifications to the tax stamp regime have not already done so.
130. The Appellate Body also recommends that the Dispute Settlement Body request the
Dominican Republic to bring its other measures, found in the Panel Report as modified by this
Report, to be inconsistent with the GATT 1994, in to conformity with its obligations under that
Agreement.

180Supra, paras. 14 and 63 of this Report.

Signed in the original in Geneva this 7th day of April 2005 by:

Luiz Olavo Baptista
Presiding Member

 _________________________ _________________________
 John Lockhart Giorgio Sacerdoti
 Member Member

ANNEX 1

24 January 2005
 (05-0297)
 Original: English

Notification of an Appeal by the Dominican Republic
under Article 16.4 and Article 17 of the Understanding on Rules
and Procedures Governing the Settlement of Disputes (DSU),
and under Rule 20(1) of the Working Procedures for Appellate Review

 The following notification, dated 24 January 2005 , from the Delegation of the Dominican
Republic, is being circulated to Members.

 Pursuant to Articles 16.4 and 17.4 of the Understanding on Rules and Procedures Governing
the Settlement of Disputes ("DSU") and Rule 20 of the Working Procedures for Appellate Review, the
Dominican Republic appeals certain issues of law and legal interpretation in the Panel Report in
Dominican Republic – Measures Affecting th e Importation and Internal Sale of Cigarettes
(WT/DS302/R).

1. The Dominican Republic believes that the Pane l committed legal error in paragraphs 7.232,
7.233, and 8.1(e) of the Panel Report, by concluding that the Dominican Republic's "tax
stamp requirement" (Article 37 of Decree 79-03 of 4 February 2003 and Decree 130-02 of 11
February 2002) is not justified under Article XX(d) of the GATT 1994.

a. The Panel erred in interpreting and appl ying the term "necessary" in Article XX(d).
In this regard, the Dominican Republic in tends to make arguments relating to the
Panel's reasoning in, inter alia, paragraphs 7.213-7.230 of the Panel Report.

b. The Panel failed to make an objective assess ment of the facts of the case, inconsistent
with its duty under Article 11 of the DSU, by exceeding the bounds of its discretion in
examining evidence submitted by the Domi nican Republic regarding tax evasion,
smuggling, and forgery of tax stamps. Th e Panel also failed to make an objective
assessment of the facts regarding the lack of reasonably available alternative
instruments. In this regard, the Domi nican Republic intends to make arguments
relating to the Panel's reasoning in, inter alia , paragraphs 7.221-7.226 and 7.228-
7.229 of the Panel Report.

2. In the event that the Appellate Body reve rses the Panel's conclusion that the tax stamp
requirement is not justified under paragraph (d) of Article XX of the GATT 1994, the
Dominican Republic requests that the Appellate Body complete the legal analysis under
Article XX of the GATT 1994.

The provisions of the covered agreements that the Dominican Republic considers to have been
erroneously interpreted or applied by the Pa nel include Article XX(d) of the GATT 1994 and
Article 11 of the DSU.

ANNEX 2

7 February 2005
 (05-0517)
 Original: English

Notification of an Other Appeal by Honduras
under Article 16.4 and Article 17 of the Understanding on Rules
and Procedures Governing the Settlement of Disputes (DSU),
and under Rule 23(1) of the Working Procedures for Appellate Review

 The following notification, dated 7 February 20 05, from the Delegation of Honduras, is being
circulated to Members.

 Pursuant to Rule 23 of the Appellate Body 's Working Procedures for Appellate Review,
Honduras hereby notifies its decision to appeal to th e Appellate Body certain issues of law covered in
the Panel Report , WT/DS302/R, (the "Panel Report") and certa in legal interpretations developed by the
Panel in that Report.

 Honduras seeks appellate review of:

a) the Panel's findings and conclusion set out in paragraphs 7.291-7.294 that there are
tax liabilities in addition to the Selective Consumption Tax that the bond requirement
secures;
b) the Panel's findings and conclusion, set out in paragraphs 7.297-7.301 of the Panel
Report, that it was not demonstrated that the fixed amount of the bond accords to
imported cigarettes treatment less favourab le than that accorded to domestic
cigarettes;
c) the Panel's findings and conclusion, set out in paragraphs 7.306-7.308 of the Panel
Report, that the difference in timing of the payment of the Selective Consumption
Tax between domestic producer s and importers in connection with the bond is not a
matter within the Panel’s terms of reference; and
d) the Panel’s conclusion, set out in para graphs 7.310-7.311, that Honduras had failed to
establish that the bond requirement accords less favourable treatment to imported
cigarettes than that accorded to the like domestic products.

 The above findings and conclusions ar e based on the following legal errors:

− the Panel did not make an objective assessment of the matter before it, namely,
Honduras's challenge to the bond requiremen t on its face, because it examined the
"application" of the bond requirement, contrary to Article 11 of the Understanding on
Rules and Procedures Governing the Settlement of Disputes ("DSU") (paras. 7.291 –
7.294 of the Panel Report);
− the Panel erred in examining the market conditions in the Dominican Republic in
order to determine the consistency of the bond requirement with Article III:4 of the
General Agreement on Tariffs and Trade 1994 ("GATT") (paras. 7.297 – 7.301 of the
Panel Report);
− the Panel’s error was compounded by the f act that the Panel made unsubstantiated
assumptions with respect to the per-unit cost of the bond fee for importers, did not
determine the per-unit cost of the bond f ee for domestic producers and did not make
the comparison between the per-unit cost s for importers and domestic producers
(paras. 7.297 – 7.301 of the Panel Report);
− the Panel erred in its finding that a differ ence in costs for importers of posting the
bond do not alter the conditions of compe tition in the Dominican Republic’s market
and, therefore, do not create less favourab le treatment for imported products within
the meaning of Article III:4 of the GATT (paras. 7.297 – 7.301 of the Panel Report);
− the Panel failed to make a finding that im porters face an additional burden compared
to domestic producers, even though only importers have to post the bond and pay the
Selective Consumption Tax upon importation, which is contrary to the requirement of
Article III:4 of the GATT, (paras. 7.292 – 7.294 of the Panel Report); and
− the Panel erred in characterising the difference in timing of the payment of the
Selective Consumption Tax in connection with the posting of the bond as a separate
claim which was not within the terms of re ference of the Panel (paras. 7.306 – 7.308
of the Panel Report).
 Honduras requests the Appellate Body to rever se or modify, where appropriate, the findings
or conclusions of the Panel. The provisions of the WTO Agreement that Honduras considers the
Panel to have erroneously interp reted or applied are Article III:4 of the GATT and Article 11 of the
DSU.