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Tax Measures on Soft Drinks and Other Beverages

Key Facts
Short Title: Mexico — Taxes on Soft Drinks
Respondent: Mexico
Third Parties: Canada; Guatemala; China; European Communities; Japan;
Complaintant(s): United States;
Dispute Number: DS308
Link to Dispute Site: http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds308_e.htm
Dispute Subject(s): Sweetener Tax;
Dispute Status: Concluded
Complaint by the United States.

On 16 March 2004, the United States requested consultations with Mexico concerning certain tax measures imposed by Mexico on soft drinks and other beverages that use any sweetener other than cane sugar.

The tax measures concerned include: (i) a 20 percent tax on soft drinks and other beverages that use any sweetener other than cane sugar ("beverage tax"), which is not applied to beverages that use cane sugar; and (ii) a 20 percent tax on the commissioning, mediation, agency, representation, brokerage, consignment and distribution of soft drinks and other beverages that use any sweetener other than cane sugar ("distribution tax").

The US considers that these taxes are inconsistent with Article III of GATT 1994, in particular, Article III:2, first and second sentences, and Article III:4 thereof.

On 26 March 2004, Canada requested to join the consultations. On 14 May 2004, Mexico informed the DSB that Mexico had accepted the requested of Canada to join the consultations.

On 10 June 2004, the United Stated requested the establishment of a panel. At its meeting on 22 June 2004, the DSB deferred the establishment of a panel. Further to a second request to establish a panel by the United States, the DSB established a panel at its meeting on 6 July 2004. Canada, China, the European Communities, Japan and Pakistan reserved their third-party rights. On 15 July 2004, Guatemala reserved its third-party right. On 20 August 2004, Pakistan informed the DSB that it did not want to participate as a third-party in the panel proceedings.

On 18 August 2004, the Panel was composed. On 1 February 2005, the Chairman of the Panel informed the DSB that it expected to complete its work by the end of May 2005, as envisaged in the timetable adopted after consultations with the parties. On 4 May 2005, the Chairman of the Panel informed the DSB that it expected to complete its work in August 2005, and that this date took account of the time needed to translate the interim report into Spanish prior to its issuance, as agreed with the parties.

On 7 October 2005, the Report of the Panel was circulated to Members. The Panel found:

* The soft drink tax and the distribution tax, as imposed on imported sweeteners and on imported soft drinks and syrups, are inconsistent with Article III:2 of GATT 1994.

* The soft drink tax, the distribution tax and the bookkeeping requirements, as imposed on imported sweeteners, are inconsistent with Article III:4 of GATT 1994.

* The measures are not justified under Article XX(d) of GATT 1994.

On 6 December 2005, Mexico notified its decision to appeal to the Appellate Body certain issues of law dealt with in the Panel report and certain legal interpretations developed by the Panel. On 2 February 2006, the Appellate Body informed the DSB that it would not be able to provide its Report within the 60-day period, and that it estimated that the Appellate Body Report would be circulated to WTO Members no later than 6 March 2006.

On 6 March 2006, the Appellate Body Report was circulated to Members. The Appellate Body found that the Panel did not err in rejecting Mexico's request that it decline to exercise jurisdiction. In addition, the Appellate Body upheld, albeit for different reasons, the Panel's finding that Mexico's measures do not constitute measures "to secure compliance with laws or regulations" within the meaning of Article XX(d) of the GATT 1994 because that provision does not permit WTO Members to take measures that seek to secure compliance by another Member of that other Member's international obligations.

At its meeting on 24 March 2006, the DSB adopted the Appellate Body report and the Panel report, as modified by the Appellate Body report.

Implementation Status of Adopted Reports

At the DSB meeting on 21 April 2006, Mexico informed the DSB that it would need a reasonable period of time to implement the DSB recommendations and rulings in this case. On 22 June 2006, the United States informed the DSB that discussions between the parties had so far not allowed them to reach an agreement on the reasonable period of time for Mexico to comply with the DSB recommendations and rulings. Therefore, the United States requested that the reasonable period of time be determined through binding arbitration pursuant to Article 21.3(c) of the DSU. On 3 July 2006, Mexico and the United States informed the DSB that they had mutually agreed that the reasonable period of time for Mexico to comply with the DSB recommendations and rulings shall be nine months and eight days, expiring on 1 January 2007. However, if the Mexican Congress enacts legislation between 1 December and 31 December 2006, the reasonable period of time shall be ten months and seven days, expiring on 31 January 2007. In light of this agreement, the United States withdrew its request for arbitration pursuant to Article 21.3(c) of the DSU.

Panel Proceedings
Brief DateBrief Description
03/22/2005U.S. Comments on Mexico's Answers to Panel Questions in Relation to the Second Substantive Meeting (pdf)
03/15/2005U.S. Answers to Panel Questions in Relation to the Second Substantive Meeting (pdf)
02/24/2005U.S. Closing Statement at the Second Meeting (pdf)
02/23/2005U.S. Opening Statement at the Second Meeting (pdf)
02/04/2005Executive Summary of the Second Written Submission of the United States (pdf)
01/21/2005Second Written Submission of the United States (pdf)
12/20/2004U.S. Answers to Question from Mexico (pdf)
12/20/2004U.S. Answers to Questions from the Panel after the First Meeting (pdf)
12/03/2004Closing Statement of the United States at the First Panel Meeting (pdf)
12/02/2004Opening Statement of the United States at the First Panel Meeting (pdf)
10/14/2004Executive Summary of the First Written Submission of the United States (pdf)
09/30/2004First Written Submission of the United States (pdf)
Appeal Proceedings
Brief DateBrief Description
01/06/2006Appellee Submission of the United States (pdf)
01/18/2006Oral Statement of the United States (pdf)