COLOMBIA – MEASURES RELATING TO THE IMPORTATION OF TEXTILES, APPAREL AND FOOTWEAR AB-2016-1
Document: Report of the Appellate Body Addendum
Date: 7 June 2016
Document codes: WT/DS461/AB/R/Add.1; WT/DS461/AB/R.
Complainant: Panama
Respondent: Colombia
Third parties: Ecuador, El Salvador, EU, China, Guatemala, Honduras, U.S., Philippines
Dispute stage: Implementation & Compliance
Agreements cited: Art. II:1(b), II:1(a), VIII:1, X:3(a)  GATT 1994

COLOMBIA – MEASURES RELATING TO THE IMPORTATION OF
TEXTILES, APPAREL AND FOOTWEAR
AB-2016-1
Report of the Appellate Body
Addendum
This Addendum contains Annexes A to C to the Report of the Appellate Body circulated as
document

The Notice of Appeal and the executive summar ies of written submissions contained in this
Addendum are attached as they were received from the participants and third participants. The
content has not been revised or edited by the Appellate Body, except that paragraph and footnote
numbers that did not start at one in the original may have been re-numbered to do so, and the
text may have been formatted in order to adhere to WTO style. The executive summaries do not
serve as substitutes for the submissions of the participants and third participants in the
Appellate Body's examination of the appeal.

LIST OF ANNEXES
ANNEX A
NOTICE OF APPEAL
Contents Page
Annex A-1 Colombia's Notice of Appeal A-2
ANNEX B
ARGUMENTS OF THE PARTICIPANTS
Contents Page
Annex B-1 Executive summary of Colombia's appellant's submission B-2
Annex B-2 Executive summary of Panama's appellee's submission B-8
ANNEX C
ARGUMENTS OF THE THIRD PARTICIPANTS
Contents Page
Annex C-1 Executive summary of the European Union's third participant's submission C-2

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ANNEX A
NOTICE OF APPEAL
Contents Page
Annex A-1 Colombia's Notice of Appeal A-2

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ANNEX A-1
COLOMBIA'S NOTICE OF APPEAL*
1. Pursuant to Articles 16.4 and 17 of the Understanding on Rules and Procedures Governing
the Settlement of Disputes ("DSU") and Rule 20 of the Working Procedures for Appellate Review
(WT/AB/WP/6, 16 August 2010) ("Working Procedures"), Colombia hereby notifies the Dispute
Settlement Body ("DSB") of its decision to appeal certain issues of law and legal interpretations in
the Panel Report in Colombia – Measures Relating to the Importation of Textiles, Apparel and
Footwear (WT/DS461) ("Panel Report").
2. Pursuant to Rules 20(1) and 21(1) of the Working Procedures, Colombia files this Notice of
Appeal together with its Appellant's Submission with the Appellate Body Secretariat.
3. Pursuant to Rule 20(2)(d)(iii) of the Working Pr ocedures, this Notice of Appeal includes an
indicative list of the paragraphs of the Panel Report containing the alleged errors, without
prejudice to Colombia's ability to rely on other paragraphs of the Panel Report in its appeal.
4. Colombia seeks review by the Appellate Body of the following errors of law and legal
interpretation by the Panel in its Report and requests the following findings by the Appellate Body.
I. Review of the Panel's Findings under Article II of the GATT 1994 and Request for
Completion
5. The Panel erred in interpreting and applying Article II:1(b) of the GATT 1994 and failed to
make an objective assessment of the matter under Article 11 of the DSU in finding that "the
compound tariff, as regards the examples set out in paragraphs 7.164 and 7.180, exceeds the
levels bound in Colombia's Schedule of Concessions and is therefore inconsistent with the
obligation in Article II:1(b), first sentence, of the GATT 1994 not to impose on the import of
products of other Members 'ordinary customs duties in excess of those set forth and provided' in
Colombia's Schedule of Concessions".
1 The Panel erred because:
 it incorrectly concluded that it was not necessary to issue a finding on whether or not the
obligations of Article II:1 of the GATT 1994 are applicable to illicit trade. In proceeding in
this manner, the Panel failed to make an objective assessment of the matter under
Article 11 of the DSU
2;
 it improperly exercised judicial economy and violated Colombia's due process rights. By
exercising false judicial economy and failin g to respect Colombia's due process rights,
the Panel failed to make an objective assessment of the matter under Article 11 of the
DSU3;
 it incorrectly found that Colombia's measure is "structured and designed to be applied to
all imports of the products concerned, withou t distinguishing between 'licit' and 'illicit'
trade" and that "no legal provision that ba ns the importation of goods whose declared
prices are below the thresholds established in Decree No. 456 has been identified". 4 In
making such findings, the Panel did not comply with Article 11 of the DSU. The Panel
erred further because such findings did not provide a valid basis for the Panel's ultimate
conclusion that it was not necessary for it to rule on whether Article II applied only to
licit trade
5;

* This document, dated 22 January 2016, was circulated to Members as document WT/DS461/6.

1 Panel Report, paras. 7.189, 7.192-7.194, and 8.2-8.4.
2 Panel Report, paras. 7.108 and 8.1.
3 Panel Report, paras. 7.90, 7.108 and 8.1.
5 Panel Report, paras. 7.105-7.108 and 8.1.

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 even on the assumption that Article II:1(b) were applicable to illicit trade, it erred in the
interpretation and application of Article II:1(b), and under Article 11 of the DSU, in
finding that it was not persuaded that Decree 456 "incorporates a legislative ceiling
which prevents the compound tariff resulting in duties that exceed the levels bound in
Colombia's Schedule of Concessions"
6;
 it improperly relaxed the burden of proof for Panama in establishing a prima facie case
under Article II.7 In proceeding in this manner, the Panel failed to comply with Article 11
of the DSU.
6. For the reasons provided above, Colombia re quests that the Appellate Body reverse the
Panel's finding that "the compound tariff, as regards the examples set out in paragraphs 7.164
and 7.180, exceeds the levels bound in Colombia's Schedule of Concessions and is therefore
inconsistent with the obligation in Article II:1(b), first sentence, of the GATT 1994 not to impose
on the import of products of other Members' ordi nary customs duties in excess of those set forth
and provide' in Colombia's Schedule of Concessions".
8 The Panel's finding under Article II:1(a) is
based entirely on its erroneous findings of inconsistency under Article II:1(b). Therefore, if the
Appellate Body were to agree with Colombia's request to reverse the Panel's findings under
Article II:1(b), Colombia requests that the Appella te Body also reverse the Panel's finding under
Article II:1(a).
9 And, as a result of the above, the Appellate Body must also reverse the Panel's
conclusions in paragraph 8.2, 8.3, and 8.4 of the Panel Report.
7. If, as requested by Colombia above, the Appellate Body reverses the Panel's finding that it
was not necessary for the Panel to issue a finding on whether or not the obligations of Article II:1
of the GATT 1994 can be extended to illicit trade, Colombia requests the Appellate Body to
complete the legal analysis under Articles II:1(a) and (b) and make the following findings:
 Articles II:1(a) and (b) do not apply to illicit trade; and,
 because imports priced below the thresholds established in Decree 456 are imported at
artificially low prices that do not reflect market conditions, the compound tariffs
established in Decree 456 do not violate Articles II:1(a) and (b) of the GATT 1994.
II. Review of the Panel's Findings under Article XX of the GATT 1994 and Request for
Completion
8. The Panel erred in the interpretation and ap plication of Article XX of the GATT 1994 and
failed to make an objective assessment of the matter under Article 11 of the DSU in finding that
Colombia has failed to demonstrate that its measure is justified under Article XX(a) and (d) of the
GATT 1994.
10 The Panel erred because:
 it incorrectly interpreted and applied the terms "to protect public morals" in
subparagraph (a) and failed to make an objective assessment of the matter under
Article 11 of the DSU when it found that Colombia has failed to demonstrate that the
compound tariff is a measure to protect public morals,
11 specifically:
o it erroneously imported elements of the "necessity" test to the assessment of
whether Decree 456 is a measure "to protect public morals";
o even in the event that it was appropriate for the Panel to examine the contribution of
the measure, it developed and imposed an overly demanding standard of "to protect"
that is inconsistent with Article XX(a);

6 Panel Report, paras. 7.186, 7.189, 7.192-7.194, and 8.2-8.4.
7 Panel Report, paras. 7.189, 7.192-7.194, and 8.2-8.4.
8 Panel Report, paras. 7.189, 7.192-7.194, and 8.2-8.4.
9 Panel Report, paras. 7.192 and 7.194.
10 Panel Report, paras. 7.592 and 8.5-8.7.
11 Panel Report, paras. 7.331-7.401 and 8.5.

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o it required Colombia to demonstrate that Decree 456 addressed the money
laundering problem in its entirety as oppose d to addressing the particular aspect of
money laundering targeted by Decree 456;
o it failed to properly the assess statistical evidence provided by Colombia
demonstrating the existence of undervalu ation and money laundering and thereby
acted inconsistently with Article 11 of the DSU;
o it misapplied "to protect" with regard to the text of the measure, the existence of
exclusions, the period of validity, the legal consequences of importing goods at prices
below the thresholds, and in regard to additional evidence.
 it incorrectly interpreted and applied the "necessity" requirement under
subparagraph (a) and failed to make an objective assessment of the matter under
Article 11 of the DSU in finding that Colombia has not demonstrated the contribution of
the compound tariff to the alleged objective of combating money laundering 12 and that
Colombia has not demonstrated that its compound tariff is necessary to combat money
laundering.13 The Panel's errors include:
o an erroneous assessment of the contribution of Decree 456 to the fight against
money laundering and, in particular, to the use of imports of apparel at artificially
low prices to launder money14;
o its failure to undertake a proper weighing and balancing of the factors involved in the
analysis of "necessity"; and
o failing to comply with its obligations under Article 11 of the DSU by disregarding
qualitative and quantitative evidence that amply demonstrated the contribution of
Decree 456 to the fighting money laundering through imports of apparel and
footwear at artificially low prices
15;
 it incorrectly interpreted and applied subparagraph (d) of Article XX because the Panel's
findings under subparagraph (d) are entirely based on its erroneous findings under
subparagraph (a)
16;
 it incorrectly interpreted and applied the chapeau of Article XX and failed to make an
objective assessment of the matter under Article 11 of the DSU in finding that "because
of the various exclusions from the application of the measure for imports originating in
countries with which Colombia has trade agreements in force, for imports into
Colombia's Special Customs Regime Zones and for imports under the 'Plan Vallejo', even
assuming that Colombia had succeeded in showing that its measure was provisionally
justified under Article XX(a) or Article XX(d) of the GATT 1994, the compound tariff is
not applied in a manner such that it meets the requirements of the chapeau of Article XX
of the GATT 1994".
17 The Panel also erred under Articles 6.2 in finding that Colombia's
arguments concerning Article XXIV were not within its terms of reference.
9. For the reasons provided above, Colombia requests that the Appellate Body reverse
paragraphs 7.592 and 8.5-8.7 of the Panel Report, which find that Colombia has failed to
demonstrate that its measure is justified under Article XX of the GATT 1994.
18 Colombia
additionally requests that the Appellate Body co mplete the analysis and find that Colombia's
measure is justified under Articles XX(a) and (d) of the GATT 1994.

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ANNEX B
ARGUMENTS OF THE PARTICIPANTS
Contents Page
Annex B-1 Executive summary of Colombia's appellant's submission B-2
Annex B-2 Executive summary of Panama's appellee's submission B-8

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ANNEX B-1
EXECUTIVE SUMMARY OF COLOMBIA'S APPELLANT'S SUBMISSION
I. INTRODUCTION
1. In Colombia, trade is being used by criminal organizations to launder and repatriate the
profits from overseas sales of narcotics and other criminal activities. Criminal groups launder the
profits from narcotics sales by purchasing appare l and footwear overseas and importing them to
Colombia at artificially low prices. Funds generated from this process are used to finance the illicit
activities, such as narcotics operations, homicides, kidnappings, extortion, and bribery.
2. WTO Members agree to reduce barriers to imports on the good faith assumption that such
imports are not linked with illicit activities and th at the exporting Member is exercising adequate
control and supervision of its exports. Where the exporting Member refuses to exercise adequate
supervision and control of its exports, the importing Member should not be under an obligation to
extend to those exports the benefits of the WTO agreements.
3. The Panel in this case failed to recognize that the benefits of the WTO Agreements, including
the tariff concessions under Article II of the GATT 1994, were never intended to apply to illicit
trade activities and erred in its interpretation of Article XX(a) and (d) used by Colombia in defense
of its regulatory policies directed at combating trade-based money laundering.
4. The WTO now has an opportunity to make a clear statement that trade liberalization is not
intended to benefit criminal activities, that both importing and exporting Members have a duty to
ensure that trade is not being used for criminal activities, and that the WTO is not a straightjacket
that constrains a WTO Member from taking measures to combat trade-based money laundering.
II. TRADE-BASED MONEY LAUNDERING
5. Illicit trade is the "dark side" of international trade growth, representing 8% to 15% of
global GDP. "Trade-based money laundering" has been investigated and documented extensively
by Colombian and international authorities.
6. Colombian authorities and the Financial Action Task Force ("FATF") have confirmed that one
channel to launder money is by using under-invoiced goods—when importers launder the
difference between prices that exporters issue on invoices and the lower prices that merchandises
are paid for. An FATF investigation also found that Free Zones offer duty and tax exemptions and
simplified administrative procedures, leading to reduced financial and custom controls. The
investigation makes clear that abuse of Free Zones adversely impacts all jurisdictions when goods
originating or transiting through Free Zones are not subject to adequate controls when exported.
III. THE MEASURE AT ISSUE
7. Decree 456 was adopted by the Colombian Government and came into force on 31 March
2014 for a period of two years. Decree 456 followed Decree 074, which had been in force for one
year.
8. Decree 456 discourages imports of apparel and footwear at artificially low prices and thereby
reduced the opportunities to launder money through this modus operandi. The Decree incorporates
thresholds that ensure that Colombia's tariff bindings are not exceeded when the price of the
goods reflect market conditions. Decree 456 is pa rt of a comprehensive strategy for combatting
money laundering.
9. Analysis conducted by the Colombian government and submitted to the Panel show that
Decrees 074 and 456 have been effective in reducing imports of apparel and footwear at artificially
low prices thereby reducing the opportunities for criminal organizations to launder their illicit
gains.

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IV. ARTICLE II OF THE GATT 1994
A. The Panel Erred by Finding That it was Not Necessary for it to Rule on Whether
 Article II is Applicable to Illicit Trade
10. Under Article 11 and 12.7 of the DSU, a Panel must interpret and apply relevant provisions
of covered agreements. Article 3.2 of the DSU states that the WTO dispute settlement system
serves to clarify the existing provisions by considering customary rules and interpretation of public
international law.
11. The interpretation of Articles II:1(a) and (b ) were highly contested between Colombia and
Panama, as Panama believed that both articles applied to all imports including even illicit
transactions, whilst Colombia argued that the Articles only cover licit imports. The Panel was
required by Articles 3.2, 11 and 12.7 of the DSU to objectively assess the applicability of
Articles II:1(a) and (b) of the GATT 1994, and the Panel has thus committed an error of law by
finding it unnecessary to rule on this matter.
12. The Panel's premise that Decree 456 applies not on ly to illicit trade did not provide a basis
for it to avoid the interpretative issue. The Panel's reasoning could only be sound if it had found
that all imports subject to Decree 456 were licit transactions. The Panel never concluded such
findings, and in fact it had acknowledged that imports under Decree 456 could involve illicit trade.
The Panel was thus obligated to determine whether Articles II:1(a) and (b) of the GATT 1994
applied to illicit trade. By failing to do so, the Panel has not resolved whether Decree 456 falls
within the scope of Articles II:1(a) and (b) to the extent of its application to illicit trade. As the
Panel's findings provide only a partial resolution, the Panel has committed an error of law.
B. The Panel's Exercise of Judicial Econ omy was Improper and Violated Colombia's
 Due Process Rights
13. The Panel's decision not to interpret Articles II:1(a) and (b) cannot be justified as an
exercise of judicial economy, which only allows a panel to "refrain from making multiple findings
that the same measure is inconsistent with various provisions when a single, or a certain number
of findings of inconsistency, would suffice to resolve the dispute". Additionally, judicial economy
cannot be used to bar defenses and arguments raised by a respondent party.
14. Unlike in previous cases where the exercise of judicial economy was authorized, the Panel
was not refraining from making multiple findings on a claim by the complaining party. Rather, it
relied on the Appellate Body's jurisprudence on ju dicial economy to refrain from ruling on an
interpretative issue that was raised by the respondent party, which was central to the disposition
of the matter before it. This resulted in false judi cial economy, a violation of the Panel's Article 11
duty to make an objective assessment of the matter. The failure to hear a claim central to
Colombia's defense also resulted in a violation of Colombia's due process rights.
C. The Panel's Assessment of Decree 456 Did Not Provide a Valid Basis for the Panel
to Avoid Resolving the Interpretative Issue as to the Applicability of Article II to
Illicit Trade
15. The Panel erred in justifying its refusal to rule on the claim raised by Colombia on its view
that Decree 456 is "structured and designed to be applied to all imports of the products
concerned" and does not distinguish between "'licit' and 'illicit' trade." It also erred in finding that
"no legal provision that bans the importation of goods whose declared prices are below the
thresholds established in Decree No. 456 has been identified".
16. The Panel failed to engage with arguments and evidence submitted by Colombia showing,
among others, that the thresholds in the Decree reflected a distinction between licit and illicit
imports, that transactions falling under the Decree are subject to control and may be subject to
criminal procedures after the importation has taken place, that the Decree seeks to discourage
illicit conduct by increasing the transactions costs on imports at artificially low prices that are used
to launder money. Accordingly, the Panel's assess ment of the consistency of Decree 456 with the
obligations under Articles II:1(a) and (b) is le gally flawed and therefore the Panel's ultimate
findings cannot stand.

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D. Even on the Assumption that Article II:1(b) is Applicable to Illicit Trade, the Panel
Erred When it Concluded th at Decree 456 Does Not Incorporate a Legislative
Ceiling that Avoids Exceeding the Colombia's Tariff Bindings
17. The Panel erred when it found that Decree 456 is inconsistent with Article II:1(b) on the
ground that the legislative ceilings in Decree 456 resulted in customs duties that exceed tariff
bindings. The Panel did not address Colombia's arguments and evidence that prices below the
legislative ceiling were artificial and did not represent market conditions. Rather the Panel opted to
conclude on the basis of hypotheticals advanced by Panama that failed to refute Colombia's
arguments on this issue. Accordingly, the panel erred under Article II:1(b) and under Article 11 of
the DSU.
E. The Panel Improperly Rela x e d t h e B u r d e n o f P r o o f f o r P a n a m a i n E s t a b l i s h i n g a
 Prima Facie Case under Article II
18. The Panel erred by relaxing the burden of proof for Panama to establish a prima facie on the
inconsistency of Decree 456 with Article II and by summarily dismissing rebuttal evidence
advanced by Colombia demonstrating that prices below the thresholds in Decree 456 did not
reflect market conditions. This lack of even-handedness is not consistent with the Article 11 of the
DSU obligation to make an objective assessment of the matter.
F. Article II of the GATT 1994 Does Not Apply to Illicit Trade
19. Colombia requests that the Appellate Body find that Article II of the GATT 1994 only covers
licit trade and its benefits do not extend to products imported at artificially low prices. Colombia
further requests that the Appellate Body find th at the compound tariffs applied under Decree 456
do not exceed the tariffs in Colombia's Schedule when products are imported at prices that reflect
market conditions and Panama has failed to rebut the arguments and evidence submitted by
Colombia in this regard. In these circumstances, the Appellate Body must find that Decree 456 is
not inconsistent with Articles II:1(a) and (b) of the GATT 1994.
V. THE PANEL ERRED IN FINDING THAT DECREE 456 IS NOT A MEASURE "TO
 PROTECT PUBLIC MORALS" UNDER ARTICLE XX(A)
20. Although the Panel correctly found that Colombia had demonstrated that the fight against
money laundering falls within the scope of policies to protect public morals, it erroneously found
that Colombia failed to establish that Decree 456 is a measure "to protect public morals". This
finding is based on the application of an overly rigorous test that is more onerous and intrusive
than the tests applied in previous cases.
A. The Panel erred by Erroneously Importing Elements of the "Necessity" Test to the
 Assessment of Whether Decree 456 is a Measure "To Protect Public Morals"
21. The Panel erred under Article XX(a) by requiring Colombia to demonstrate the effectiveness
of the challenged measure as part of establishing that the measure is "to protect public morals".
22. The effectiveness of the challenged measure goes to the contribution of the measure to the
objective pursued, which under well-established Appellate Body case law, is a matter relevant to
the necessity analysis, not whether the measures is adopted or enforced to protect public morals.
23. Not only does the Panel's assessment of "to protect" public morals go beyond the
requirements of Article XX(a), it also goes beyond what has been required in the past by panels
and the Appellate Body. Given the gravity of the concerns related to money laundering and the
enormity of the problem that Colombia faces in connection with international crime, it would be
egregious that Colombia be forced to meet a higher standard to invoke public morals than other
WTO Members.

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B. Even if it was Appropriate for the Pa nel to Examine the Contribution of the
Measure, the Panel Erred by Developing and Imposing an Overly Demanding
Standard of "To Protect" That is Inconsistent with Article XX(a)
24. The Panel erred when it required that Colombia's measure satisfy a 100% effectiveness
standard by requiring evidence that demonstrated that products at prices below the thresholds
established in Decree 456 were necessarily imported at artificially low prices that did not reflect
market conditions, that the thresholds themselves necessarily reflected artificially low prices, and
that imports at prices below the thresholds necessarily were being used to launder money. Such a
standard is not required under subparagraph (a), is impossible to meet, and therefore improperly
precludes Members from taking measures to protec t public morals, and is not supported by prior
Appellate Body decisions on "to protect" in Article XX(a).
C. The Panel Erred by Requiring Colombia to Demonstrate that Decree 456 Addressed
the Money Laundering Problem in its Enti rety as Opposed to Addressing the
Particular Aspect of the Money Laundering Targeted by Decree 456
25. The Panel erred when it focused on the cont ribution of Decree 456 to the overall fight
against money laundering rather than to the particular aspect of the problem targeted by the
measure. There is no basis in Article XX(a) for the Panel to have assessed the extent to which
Decree 456 addresses money laundering overall or the comparative magnitude of trade-based
money laundering and of the contribution that the measure makes in terms of the broader money
laundering problem.
D. The Panel Erred in its Assessment of the Statistical Evidence Provided by Colombia
 Demonstrating the Existence of Undervaluation and Money Laundering
26. The Panel unreasonably dismissed scientific evidence produced and submitted by Colombia
demonstrating the contribution of Decree 456 to combating money laundering through imports of
apparel and footwear and arbitrarily discharged Pa nama of its burden of proof. The Panel stated
that Colombia's duty was to produce evidence of actual transactions relating to goods coming from
China directly or through Panama despite the sufficiency of statistical evidence and the evidentiary
hurdles in producing specific transaction data in Panama's hands. The Panel's actions in this regard
conflict with its Article 11 duty to conduct an impartial and reasonable analysis of the evidence and
properly allocate the burden of proof.
E. Additional Errors that Invalidate the Panel's Finding
27. The Panel made the following further errors in its application of "to protect public morals" in
Article XX(a):
 Text of the Measure: The Panel imposed a requirement that the measure being justified
under subparagraph (a) include an express indication of the public morals objective being
pursued even though no such requirement is in Article XX(a) and no prior case has ever
interpreted Article XX(a) as imposing such a requirement.
 Exclusions: The Panel interpreted exemptions in the measure as unrelated and inconsistent
with the measures objective of fighting money laundering. In doing so, the Panel again held
Colombia to an improperly high standard that is not required for a finding that the Decree is
a measure to protect public morals.
 Period of Validity of the Measure: The Panel erred in finding that a measure with a
duration of 2 years, like Decree 456, cannot have been taken to protect public morals.
 Legal Consequences of Importing Goods at Prices Below the Thresholds: The Panel
improperly found that Decree 456 is not a meas ure to protect public morals based on the
lack of automatic criminal consequences. This interpretation runs counter to prior Appellate
Body decisions which emphasize that "Members of the WTO have the right to determine for
themselves the level of enforcement of their WTO-consistent laws and regulations."

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 Additional Evidence: The Panel was not entitled to dismiss government statements on the
objectives of Decree 456 on the mere grounds that they post-dated the establishment of the
Panel, especially in light of the fact that it was the Panel that accepted Decree 456 (a post-
establishment measure) within its terms of reference.
F. The Appellate Body Should Reverse the Pa nel's Findings and Conclude that
 Decree 456 is "to Protect Public Morals."
28. Colombia requests that the Appellate Body reverse the Panel's findings and find that
Decree 456 is a measure taken to protect public morals.
VI. THE PANEL ERRED IN FINDING THAT DECREE 456 IS NOT "NECESSARY" TO
 PROTECT PUBLIC MORALS
A. The Panel Erred in the Assessment of Contri bution of Decree 456 in Combating
 Money Laundering
29. The Panel developed and applied an incorrect 100% effectiveness standard that is unrealistic
for any government to meet and demanded that Colombia show that Decree 456 addresses the
public morals objective in totality. There are no such requirements in Article XX(a) and prior
Appellate Body decisions do not require Members to meet such a stringent standard.
B. The Panel Failed to Undertake a "Weighing and Balancing"
30. The Appellate Body has explained that the necessity analysis "involves a process of
'weighing and balancing' a series of factors, including the importance of the objective, the
contribution of the measure to that objective, and the trade-restrictiveness of the measure." The
Panel did not follow this guidance in its analysis. It based its negative finding of necessity solely on
its analysis of contribution without taking into account its assessment or findings with respect to
the important and vital nature of the interests at stake and the moderate trade-restrictive effects
of the measure. This resulted in an improper "necessity" analysis under Article XX(a) which should
be reversed.
C. The Panel Disregarded Qualitative an d Quantitative Evidence that Amply
Demonstrated the Contribution of Decree 456 to the Fight Against Money
Laundering
31. The Panel dismissed or disregarded quantitative and qualitative evidence that plainly make
the case that Decree 456 contributes to Colombia's multidimensional regulatory efforts to
eliminate money laundering and, in particular, money laundering through imports of apparel and
footwear at artificially low prices. The Panel should have found that Colombia met its burden in
establishing a presumption that the Decree 456 contributed to this important public policy
objective. The Panel should have also found that Panama's failure to submit evidence in response
could not rebut the presumption that Decree 456 co ntributed to the objective. As a result, the
Panel erred given that Article 11 of the DSU mandat es that Panels consider all of the evidence
presented to it and to ensure that its findings have a proper basis on that evidence.
D. Request for Completion of the Analysis
32. Colombia requests that the Appellate Body complete the analysis and find that Decree 456 is
a measure that is necessary to protect public morals within the meaning of Article XX(a) of the
GATT 1994.
VII. THE PANEL ERRED IN THE INTE RPRETATION AND APPLICATION OF
 PARAGRAPH (D) OF ARTICLE XX OF THE GATT 1994
33. The Panel erroneously concluded that Colombia had failed to demonstrate that Decree 456 is
designed to secure compliance with Article 323 of Colombia's Criminal Code within the meaning of
Article XX(d) based entirely on its previous analysis under subparagraph (a). Colombia
demonstrated that the Panel's analysis under subparagraph (a) is fundamentally flawed. The
Panel's analysis under subparagraph (d) thus necessarily suffers from the same flaws.

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Consequently, to the extent the Appellate Body agrees with Colombia and reverses the Panel's
findings under subparagraph (a), it must also reverse the Panel's findings under subparagraph (d).
VIII. THE PANEL ERRED IN FINDING TH AT DECREE 456 DOES NOT MEET THE
 REQUIREMENTS OF THE CHAPEAU OF ARTICLE XX OF THE GATT 1994
A. Exclusion of FTA Partners
34. Colombia argued that the exclusion of imports of apparel and footwear from its FTA partners
was justified by Article XXIV of the GATT 1994 and could not be inconsistent with the chapeau of
Article XX. Rather than engage Colombia's argument and examine the relationship between
Article XX and XXIV, the Panel dismissed Colombia's claim on an incorrect interpretation of
Articles XX and XIV, which taints and invalidates its finding under the chapeau.
B. Zones with Special Customs Regimes and Plan Vallejo
35. The Panel erred in the interpretation and application of the chapeau of Article XX in finding
that, due to the exclusion of the SCRZs and of im ports entering Colombia under the Plan Vallejo
from the application of the compound tariff, the measure is applied in a manner that constitutes a
means of arbitrary or unjustifiable discrimination and a disguised restriction on international trade.
Accordingly, Colombia requests that the Appellate Body reverse the Panel's finding.

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ANNEX B-2
EXECUTIVE SUMMARY OF PANAMA'S APPELLEE'S SUBMISSION1
1.1. Colombia has failed to demonstrate the existenc e of errors in the Panel's decision not to rule
on the applicability of Articles II:1(a) and (b) of the GATT 1994 to so-called "illicit trade". As was
found by the Panel, the measure at issue is neutral in terms of the legality or illegality of the trade
to which it is applied (i.e. it makes no distinction between "licit" and "illicit" trade). It was therefore
appropriate for the Panel to assess the necessi ty or usefulness of ruling on whether or not
Articles II:1(a) and (b) were applicable to "illicit trade", and ultimately to determine that there was
no such necessity or usefulness. There was no im proper use of judicial economy, as the Panel
effectively addressed the interpretative issue raised by Colombia. Colombia also failed to
demonstrate the existence of errors that call into question the Panel's good faith with respect to
the factual finding that the compound tariff is not a measure that distinguishes between "licit
trade" and "illicit trade". The argument that the Panel did not take into account the tariff's
"legislative ceiling" is factually incorrect, and the argument that the Panel relaxed the burden of
proof in favour of Panama is based on a misinter pretation of the applicable legal standard and of
the evidentiary requirement deriving from that standard. In any case, Panama notes that neither
the text and context of Articles II:1(a) and (b) of the GATT 1994, nor the object and purpose of
that Agreement, support an interpretation of the terms "importation" and "commerce", in both
provisions respectively, under which the GATT 1994 does not apply to "illicit trade".
1.2. Regarding the claim linked to Article XX(a ) of the GATT 1994, the Panel found correctly that
Colombia had failed to demonstrate that the compound tariff was a measure "designed" to protect
public morals. Colombia's arguments are based on a misinterpretation of the Panel's findings. The
Panel carefully examined the opinions of the pa rties; the text of Decree No. 456; the design,
architecture and structure of the measure; the exemptions from the measure; the legal
consequences of importation; the period of validity of the compound tariff; and other evidence,
and correctly determined that there were no fact ual elements to support the argument that the
measure had been "designed" to protect public morals. At no point did the Panel demand that the
measure be 100% effective, nor did it "require" any demonstration that Decree No. 456 addressed
the problem of money laundering in its entirety, and much less did it mishandle the statistical
information provided by Colombia.
1.3. Panama also maintains that the Panel correctly concluded that the compound tariff was not
a measure "necessary" to protect public morals within the meaning of Article XX(a) of the
GATT 1994. The Panel did not err in its assessment of the measure's "contribution". Colombia
never in fact managed to demonstrate the existenc e of a genuine relationship of ends and means
between the compound tariff and the objective of combating money laundering. Furthermore, the
Panel did weigh and balance these factors in the "n ecessity" analysis, and properly concluded that
the measure did not contribute to the objective pursued and that trade-restrictiveness did exist. In
Panama's view, the Panel did not disregard evidence relating to the measure's "contribution" and
thereby act inconsistently with Article 11 of the DSU.
1.4. With regard to Colombia's claim concerning the Panel's findings in respect of Article XX(d) of
the GATT 1994, Panama is of the opinion that Co lombia has failed to properly articulate its
arguments. In any case, in the light of the same arguments put forward under Article XX(a) of the
GATT 1994, Panama considers that the Panel correct ly concluded that the compound tariff is not a
measure necessary to secure compliance with Article 323 of the Colombian Criminal Code.
1.5. Lastly, with regard to the chapeau of Article XX of the GATT 1994, the Panel correctly
concluded that the compound tariff is not applied in a manner such that it meets the requirements
of this chapeau. In particular, the Panel correctly assessed the exclusion of trading partners and
free zones as factual elements that show the arbitrary way in which Colombia has administered
the compound tariff.

- C-1 -

ANNEX C
ARGUMENTS OF THE THIRD PARTICIPANTS
Contents Page
Annex C-1 Executive summary of the European Union's third participant's submission C-2

- C-2 -

ANNEX C-1
EXECUTIVE SUMMARY OF THE EUROPEAN UNION'S THIRD PARTICIPANT'S SUBMISSION1
1. The European Union considers that Article II of the GATT 1994 applies to trade flows,
regardless of their characterisation under the municipal law of the Member concerned as "illicit" or
"illegal".
2. For a measure to be justified under Article XX of the GATT 1994 the analysis boils down to
determining whether the measure is rational and reasonable in both its design and in its
application. When the measure at issue is manifestly not designed to serve the alleged objective, it
may be appropriate for a panel to conduct a similar analysis both with regard to the design of the
measure at issue in the light of the value addresse d, and with regard to the contribution of the
measure to the value protected under the necessity test.
3. It is not required that, in order to be justified under Article XX(a), a measure must include
an express reference to the protection of public morals. However, it is relevant if such a reference
is made. Nevertheless, a panel should not be bound by such a characterisation and should rather
make an objective assessment on the basis of the design, the architecture, and the revealing
structure of the measure at issue.
4. A measure containing certain exceptions is not rendered automatically a measure not
designed to protect public morals for the simple fact that it includes the said exceptions. The
European Union considers that such exceptions should not necessarily be related and consistent
with the alleged objective. WTO Members enjoy regulatory space so as to design such measures,
provided that the exceptions are permissible.
5. A certain measure may be considered as part of a broader strategy aimed at tackling a
particular public policy issue and thus making the required contribution to the objective sought.
6. The Appellate Body has further indicated in EC – Seal Products that an exception may be
justified by a different purpose than the purpos e of the measure at issue, provided that the
exception is designed so as to minimise the negative effect on the main purpose of the measure.
7. The European Union notes that there may be situations when certain elements of the
analysis under the necessity test and under the chapeau overlap, in particular in cases when the
rationale for the main measure, as well as that for the discrimination occurring through an
exception to the main measure, is the same.