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The Soft Drinks Case: The WTO and Regional Agreements*

  • WILLIAM J. DAVEY (a1) and ANDRÉ SAPIR (a2)
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1 Appellate Body Report, Mexico – Tax Measures on Soft Drinks and Other Beverages, WT/DS308/AB/R, adopted 24 March 2006, and Panel Report, WT/DS308/R, adopted as modified by the Appellate Body Report. The Appellate Body division consisted of Yasuhei Taniguchi (presiding), Merit E. Janow, and Giorgio Sacerdoti. The Panel was composed with the agreement of the parties and consisted of Ronald Saborio Soto (chair), Edmond McGovern, and David Walker.

2 For a description of the US import regime, see United States Department of Agriculture – Foreign Agricultural Service, ‘Fact Sheet: US Imports of Sugar and Sugar-Containing Products’ (March 2007), available at (last visited 6 October 2008). For US sugar policy more generally, see United States Department of Agriculture – Economic Research Service, ‘Briefing Rooms: Sugar and Sweeteners: Policy’ (3 March 2008), available at (last visited 6 October 2008).

3 The Mexican version of the background to the dispute is taken from the Panel report, paras. 4.77–4.97.

4 For a similar view of the evolution of the NAFTA sugar market, see United States Department of Agriculture – Foreign Agricultural Service, ‘Mexico and Sugar: Historical Perspective’, available at (last visited 6 October 2008).

5 One of the problems of the GATT dispute settlement system was that it could be blocked if the disputing parties did not agree on the composition of the Panel (i.e. on the identity of the panelists). The WTO solves this problem by providing that the WTO Director-General can appoint the members of a Panel if the parties cannot agree. NAFTA attempted to solve this problem by providing for a 30-person roster of panelists – with ten from each party. NAFTA, art. 2009. Under NAFTA article 2011, five-person Panels are to be composed as follows: the chair is to be agreed upon and each party is to select two panelists who are from the other party (normally from the roster since anyone else would be subject to preemptory challenge). If the chair is not agreed upon, then the party chosen by lot is to select the chair. If a party does not select its panelists, they are to be chosen by lot from the roster. The roster has never been formally established.

6 For a description of the evolution of this dispute, see William J. Davey, ‘Implementation of the Results of WTO Trade Remedy Cases’, in The WTO Trade Remedy System: East Asian Perspectives (Mitsuo Matsushita, Dukgeun Ahn, and Tain-Jy Chen eds., London: Cameron May 2006), pp. 33, 51–52.

7 Mexico – Anti-Dumping Investigation of High Fructose Corn Syrup from the United States, WT/DS132/R, adopted 24 February 2000; Mexico – Anti-Dumping Investigation of High Fructose Corn Syrup (HFCS) from the United States, Recourse to Article 21.5 of the DSU by the United States, WT/DS132/RW & AB/RW, adopted 21 November 2001. The duties were also successfully challenged in NAFTA Chapter 19 proceedings. Final Decisions, Review of the Final Determination of the Antidumping Investigation on Imports of High Fructose Corn Syrup, Originating from the United States of America, Case MEX-USA-98-1904-01, 3 August 2001 and 15 April 2002.

8 The measure is described more precisely in the Panel report, at paras. 2.1–2.6.

9 The effect of the tax was felt almost exclusively by the United States, although the tax did not discriminate explicitly on the basis of origin. Mexico is a very minor producer of HFCS (1% of world production in 2004), while the US is the overwhelmingly dominant producer (71% of world production) and had preferential access to the Mexican market under NAFTA. Paul Bratley, ‘The Ups and Downs of Corn Sweeteners’, International Sweetener Colloquium, Tucson, Arizona, 7 February 2005 (available at,4,2004 HFCS Production by Country (last visited 6 October 2008)).

10 WT/DS308/16.

11 The text of the so-called Sweeteners Agreement with Mexico can be found at (last visited 6 October 2008). The HFCS-sugar dispute between the US and Mexico is described in general in Gary Clyde Hufbauer and Jeffrey J. Schott, NAFTA Revisited: Achievements and Challenges, pp. 243–245 (Institute of International Economics 2005). The settlement did not resolve several NAFTA Chapter 11 (Investment) disputes brought by US HFCS makers against Mexico. Reportedly, a Panel in one of those cases has found that Mexico is liable for a violation of the national-treatment provision of Chapter 11, but has not yet set the amount of liability. See Corn Products International's 2008 Form 10-K filing, item 3, available at (last visited 6 October 2008).

12 ‘USTR, USDA Reject NAFTA Proposals By U.S., Mexican Industry for Sugar Trade’, BNA International Trade Daily, 11 February 2008.

13 Panel Report, para. 4.113.

14 Panel Report, para. 4.115.

15 Panel Report, para. 4.114.

16 Panel Report, paras. 8.21–8.160. In respect of sweeteners, the Panel found (i) that beet sugar and cane sugar were like products in terms of Article III:2, first sentence, and that the soft-drinks tax and distribution tax indirectly taxed imported beet sugar in excess of domestic cane sugar; (ii) that imported HFCS and domestic cane sugar were competitive products in terms of Article III:2, second sentence, and the interpretative note thereto, that they were dissimilarly taxed, and that the soft drinks and distribution taxes were applied so as to provide protection to the Mexican domestic production of cane sugar; and (iii) that beet sugar and HFCS were like products to cane sugar for purposes of Article III:4 and that the challenged soft drinks and distribution taxes and bookkeeping requirements resulted in less favorable treatment of imported beet sugar and HFCS as compared to domestic cane sugar. In respect of soft drinks and syrups, the Panel found that the imported and domestic products were like products for purposes of Article III:2, first sentence, and that the imported products sweetened with non-cane sweeteners were taxed in excess of the like domestic products.

17 Panel Report, para. 4.118, citing the Appellate Body Report in Korea–Beef, WT/DS161.

18 Panel Report, para. 8.179.

19 Panel Report, para. 8.181.

20 Panel Report, para. 8.186.

21 Panel Report, para. 8.194.

22 Appellate Body Report, para. 68. Although its determination of the scope of the terms ‘laws or regulations’ effectively disposed of Mexico's Article XX(d) defense, the Appellate Body also discussed the meaning of the phrase ‘to secure compliance’. In that regard, it noted that while it has said that the contribution that a measure makes to securing compliance is a factor to be weighed in deciding whether it is necessary under Article XX(d), that does not mean that a measure has to guarantee that compliance will occur as suggested by the Panel or that it has to be coercive. In the Appellate Body's view, the issue is the extent to which ‘the design of the measure contribute[s]’ to securing compliance. Appellate Body Report, para. 74.

23 Appellate Body Report, para. 69.

24 Appellate Body Report, para. 69 & n.148.

25 It found support for this conclusion in the fact that the measures given as examples in Article XX(d) included only domestic measures. Appellate Body Report, para. 70. Since the examples are not exclusive, they do not themselves rule out the inclusion of international obligations within the scope of the terms.

26 Appellate Body Report, para. 71.

27 Appellate Body Report, para. 77.

28 Appellate Body Report, para. 78.

29 See text accompanying notes 60–68 infra.

30 In the New Shorter Oxford English Dictionary (1993), the first meaning of ‘law’ refers to ‘[t]he body of rules … which a particular State or community recognizes’. The term ‘community’ could obviously be used in an international context, e.g. the community of nations, but it is probably more commonly used to refer to a more localized entity.

31 Marceau notes that this reading of Article XX(d) should not limit the ability of WTO Members to take environmental measures, which are more the province of subparagraphs (b) and (g) of Article XX, but that interpreting XX(d) so as to permit general countermeasures to enforce other agreements would go too far. Gabrielle Marceau, ‘The Scope of the Article XX(d) Exception for Implementing MEAs Domestically and for Policing Compliance of International Environmental Laws by Other Members after the Soft Drinks Dispute’ (2006), available at (last visited 4 June 2008).

32 Panel Report, Annex B.

33 Panel Report, paras. 7.11–7.17.

34 Appellate Body Report, para. 44.

35 Appellate Body Report, n.86.

36 Argentina – Definitive Anti-Dumping Duties on Poultry from Brazil, WT/DS241/R, adopted 19 May 2003.

37 Argentina–Poultry Anti-Dumping Duties, para. 7.38.

38 Appellate Body Report, para. 45.

39 Appellate Body Report, para. 46, quoting Appellate Body Report, India – Patent Protection for Pharmaceutical and Agricultural Chemical Products, WT/DS50/AB/R, para. 92, adopted 16 January 1998.

40 Appellate Body Report, paras. 48–49.

41 Appellate Body Report, para. 51.

42 Appellate Body Report, paras. 52–53, citing also DSU articles 3.2, 3.3, and 19.2.

43 Appellate Body Report, para. 52 (emphasis original).

44 Although not mentioned by the Appellate Body, this is in accord with its earlier decisions in India–Quantitative Restrictions and Turkey–Textiles, where it rejected suggestions that certain political issues (e.g., the application of the exceptions for balance-of-payments restrictions and preferential trade areas) were unsuitable for consideration by Panels in WTO dispute settlement proceedings. In this regard, see William J. Davey, ‘A Comment on Are the Judicial Organs of the World Trade Organization Overburdened?’, in Efficiency, Equity, and Legitimacy: The Multilateral Trading System at the Millennium (Robert B. Porter, Pierre Sauvé, Arvind Subramanian, and Americo Beviglia Zampetti eds., Washington, DC: Brookings Institution Press 2001), pp. 329–333; William J. Davey, ‘Has the WTO Dispute Settlement System Exceeded Its Authority?: A Consideration of Deference Shown by the System to Member Government Decisions and Its Use of Issue-Avoidance Techniques’, 4(1) JIEL 79, 104–105 (2001). More generally, it is worth noting that the International Court of Justice typically does not decline to exercise jurisdiction where it exists. As explained by Rosenne, ‘the Court has little freedom to decide whether to deal with a case submitted to it. Its function, its raison d'être, is to decide disputes that are submitted to it, and only essential deficiencies or overriding requirements of judicial propriety can lead it to refrain from determining a case.’ Shabtai Rosenne, The Law and Practice of the International Court: 1920–1996, Volume II – Jurisdiction 842 (The Hague, Boston, London: Martinus Nijhoff Publishers 1997). This is, if anything, even more the case for the WTO system since it effectively has compulsory jurisdiction. The examples Rosenne gives where the ICJ has declined to rule on a case seem to relate to situations where no relief can be granted or none has been requested or where the matter is moot. Ibid. at 546–552. For consideration of issues such as mootness, non liquet, and the like in GATT/WTO practice, in the ICJ and in the US, see generally William J. Davey, ‘Has the WTO Dispute Settlement System Exceeded Its Authority?: A Consideration of Deference Shown by the System to Member Government Decisions and Its Use of Issue-Avoidance Techniques’, 4(1) JIEL 79 (2001).

45 Appellate Body Report, para. 54.

46 NAFTA article 2005.6 provides, subject to narrow exceptions, that ‘[o]nce dispute settlement procedures have been initiated under [NAFTA] or … under the GATT, the forum selected shall be used to the exclusion of the other’. See also text accompanying notes 35–37, supra.

47 See generally Joost Pauwelyn, Conflict of Norms in Public International Law: How WTO Law Relates to Other Rules of International Law (New York: Cambridge University Press 2003); William J. Davey, ‘The Quest for Consistency: Principles Governing the Interrelation of the WTO Agreements’, in William J. Davey, Enforcing World Trade Rules: Essays on WTO Dispute Settlement and GATT Obligations (London: Cameron May 2006), p. 317.

48 Black's Law Dictionary, 1336–1337 (8th edn, 2004) defines ‘res judicata’ as ‘1. An issue that has been definitively settled by judicial decision. 2. An affirmative defense barring the same parties from litigating a second lawsuit on the same claim, or any other claim arising from the same transaction or series of transactions and that could have been – but was not – raised in the first suit. The three essential elements are (1) an earlier decision on the issue, (2) a final judgment on the merits, and (3) the involvement of the same parties, or parties in privity with the original parties.’ See also American Law Institute, Restatement Second, Judgments §§ 17, 24, 25, 26 (1982).

49 The Appellate Body has ruled that a claim rejected in the original Panel proceeding because a prima facie case had not been established may not be raised in a subsequent DSU article 21.5 proceeding, although a claim not considered for reasons of judicial economy could be raised. The Appellate Body relied on the principle of finality. EC–Bed Linen (Article 21.5 – India), WT/DS141/AB/RW, paras. 78–100. It also referred by analogy to DSU article 17.14, which requires parties to accept Appellate Body reports unconditionally.

50 European Communities – Measures Affecting Trade in Commercial Vessels, WT/DS301/R, adopted 20 June 2005; United States – Sections 301–310 of the Trade Act of 1974, WT/DS152/R, adopted 27 January 2000. Neither Panel report was appealed.

51 This point is made by the EC Court of Justice in European Economic Area, Opinion 1/91, [1991] ECR I-6084 (suggesting identical provisions in the EC and EEA treaties might be interpreted differently because of the different degree of economic integration contemplated by the two treaties). A similar situation would arguably arise in all cases involving the WTO agreement and some other international agreement.

52 Accord, Joost Pauwelyn, Editorial Comment: ‘Adding Sweeteners to Softwood Lumber: The WTO-NAFTA “Spaghetti Bowl” is Cooking’, 9 JIEL 197, 200–201 (2006). Brownlie also makes this point in respect of municipal and international proceedings, noting, inter alia, that the ‘issues will have a very different aspect’. Ian Brownlie, Principles of International Law (Oxford: Oxford University Press, 5th edn, 1998), pp. 52–53. An analogy could be drawn to federal-court systems where it may sometimes be the case that, for example, a state court could not entertain a federal claim and vice versa. In such a situation, res judicata may not apply. American Law Institute, Restatement Second, Judgments § 26(1)(c) and Comment c (1982). See also, ibid., § 25, Comment e.

53 This does not necessarily imply that the results of a non-WTO dispute settlement proceeding should not be considered and given appropriate weight by WTO Panels and the Appellate Body.

54 DSU, art. 23.

55 While useful, for example, it is not clear that the International Law Commission's Conclusions of the work of the Study Group on the ‘Fragmentation of International Law: Difficulties arising from the Diversification and Expansion of International Law’ (2006) provide any clear guidance. Should a trade-related environmental measure be viewed as subject to the trade regime or the environmental regime? Is it a trade measure or an environmental measure? Each position would seem to have valid arguments in its favor.

56 Pauwelyn argues for coordination, but is unclear how it can be achieved. Pauwelyn, supra note 52, at 201–202; Joost Pauwelyn, ‘Choice of Jurisdiction: WTO and Regional Dispute Settlement Mechanisms: Challenges, Options and Opportunities’ (2006), available at (last visited 4 June 2008).

57 See text accompanying notes 35–37, supra.

58 See generally Marion Panizzon, Good Faith in the Jurisprudence of the WTO (Oxford and Portland, OR: Hart Publishing 2006).

59 See, e.g., Vienna Convention on the Law of Treaties, art. 31.3(c) (context shall comprise any relevant rules of international law applicable in the relations between the parties). Pauwelyn argues that this provision is not really that useful since the phrase ‘the parties’ means all the parties, which will not be the case when regional trade agreements are at issue. Pauwelyn, supra note 56. He would instead argue that in the process of determining the applicable law, the Panel would conclude that the explicit agreement between the parties should be given effect. Ibid.

60 In this regard, the ILC Conclusions, supra note 55, are noteworthy. They state that when States enter into a treaty that may conflict with other treaties, they should try to settle the relationship issue, but that they cannot affect third-party rights in doing so. Conclusion 30.

61 Pauwelyn criticizes such a result on the grounds that the result would (a) go against the sovereign will of the parties (but one of the parties could have agreed, perhaps in bad faith admittedly, on the assumption that a WTO Panel would not decline jurisdiction and that it could agree to the exclusivity clause knowing the only sanction would be that imposed under the FTA); (b) waste resources (basically true); and (c) result in unpredictability in trade relations because of potential conflicts (also possible). Pauwelyn, supra note 56.

62 See David L. H. Morgan, ‘Dispute Settlement Under PTAs: Political or Legal?’, University of Melbourne Legal Studies Research Paper No. 341, available at (last visited 7 October 2008).

63 Factory at Chorzów (Germany v. Poland) (Jurisdiction), PCIJ Series A, No. 9 (1927).

64 Appellate Body Report, para. 55 & n.114.

65 Appellate Body Report, para. 56.

66 Pauwelyn essentially agrees. See Pauwelyn, supra note 56.

67 The Appellate Body stated that it had ‘no alternative’ but to do as the Panel had done, i.e. ‘examine the provisions of the Lomé Convention ourselves in so far as necessary to interpret the Lomé Waiver’. Its examination of the meaning of the Convention covered several pages in its report. European Communities – Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/AB/R, paras. 167–178, adopted 25 September 1997.

68 It should be noted that it is possible that a subsequent determination under the non-WTO agreement will be inconsistent with the decision in respect of that agreement made by the WTO body. That would be unfortunate, but such a possibility seems inevitable. It is similar to the situation in the United States where a federal court may have to interpret state law in the absence of state-court precedent. When it does so, it is always possible that a subsequent state-court decision on the issue may be inconsistent with the federal-court decision.

69 See also United States – Import Prohibition of Certain Shrimp and Shrimp-Containing Products, WT/DS58/AB/R, adopted 6 November 1998 (referring to other international agreements to assist in interpretation of GATT, at para. 168 – without any suggestion that it was definitively interpreting those agreements); United States – Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R, adopted 20 May 1996 (GATT not to be interpreted in ‘clinical isolation’ from public international law, at page 17).

70 See Chad Bown, ‘MFN and the Third-Party Economic Interests of Developing Countries in GATT/WTO Dispute Settlement’, in Transcending the Ostensible: Developing Countries in the WTO Legal System (Chantal Thomas and Joel Trachtman eds., Oxford: Oxford University Press 2009).

71 See Marc Busch and Eric Reinhardt, ‘Three's a Crowd: Third Parties and WTO Dispute Settlement’, 58(3) World Politics 446–477 (2006).

72 See Henrik Horn and Petros C. Mavroidis, ‘The WTO Dispute Settlement System 1995–2006: Some Descriptive Statistics’, IFN Working Paper No. 740, Research Institute of Industrial Economics, Stockholm (2008).

73 GATT Article XXIV.7(a). GATS Article V.7(c) contains a similar provision.

74 See Petros C. Mavroidis, ‘If I Don't Do It, Somebody Else Will (or Won't)’, 40(1) Journal of World Trade 187–214 (2006).

75 See Jagdish Bhagwati, Termites in the Trading System: How Preferential Agreements Undermine Free Trade (New York: Oxford University Press 2008).

76 Imports plus exports. Figures for 2007 taken from the WTO website, (last visited 7 October 2008).

77 Peter Drahos, ‘The Bilateral Web of Trade Dispute Settlement’, Paper for the workshop on ‘WTO Dispute Settlement and Developing Countries: Use, Implications, Strategies, Reforms’, University of Wisconsin at Madison, 20–21 May 2005.

78 With one exception, all the pre-2000 EC RTAs used a diplomatic, rather than a quasi-judicial, approach to dispute settlement. The option of having recourse to arbitration is normally available provided both parties agree. The EC–Mexico free-trade agreement marked the EC shift towards a quasi-judicial model of dispute adjudication. See Ignacio Garcia Bercero, ‘Dispute Settlement in European Union Free Trade Agreements: Lessons Learned?’, in Regional Trade Agreements and the WTO Legal System (Lorand Bartels and Federico Ortino eds., Oxford: Oxford University Press 2006).

79 William J. Davey, ‘Dispute Settlement in the WTO and RTAs: A Comment’, in Regional Trade Agreements and the WTO Legal System (Lorand Bartels and Federico Ortino eds., Oxford: Oxford University Press 2006), p. 354.

80 Ibid. at p. 357.

81 Peter Drahos, ‘The Bilateral Web of Trade Dispute Settlement’, Paper for the workshop on ‘WTO Dispute Settlement and Developing Countries: Use, Implications, Strategies, Reforms’, University of Wisconsin at Madison, 20–21 May 2005, p. 11.

82 See, for instance, Peter Drahos, ‘The Bilateral Web of Trade Dispute Settlement’, Paper for the workshop on ‘WTO Dispute Settlement and Developing Countries: Use, Implications, Strategies, Reforms’, University of Wisconsin at Madison, 20–21 May 2005.

* Comments on an earlier version by the discussant, Frieder Roessler, and by Chad Bown, David Gantz, Bernard Hoekman, Joost Pauwelyn, Joel Trachtman, and Joseph Weiler are gratefully acknowledged.

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