Mexico - Tax Measures on Soft Drinks and Other Beverages

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Law and Practice of International Trade

Case-note

DISPUTE SETTLEMENT: DISPUTE DS308

Mexico - Tax Measures on Soft Drinks and Other Beverages

The Mexico- Soft drinks case was an important case based on the sweetener’s trade market in North America. This case note will try to summarize the facts of the case in order to analyze the issues raised by it. Following, we try to expose the reasons why Mexico decided to implement tax measures as a response to the United State’s refusal to submit their dispute to the North American Free Trade Agreement (NAFTA) dispute settlement panel. And last, give a brief opinion on the issues and the way they were upheld along the case.

Since January 2002, Mexico imposed a twenty percent tax on the sale and distribution of soft drinks and other beverages that used any sweetener other than cane sugar, including, and specially, high fructose corn syrup (HFCS). The United States is the primary supplier of almost all the HFCS used to sweeten beverages in Mexico, and on the other hand all the beverages sweetened with cane sugar use domestic product.

In March 2004 the United States requested consultations with Mexico regarding Articles 1 and 4 of the DSU and Article XXII of the GATT 1994, with respect to these tax measures imposed by Mexico. And on 10 June 2004, the United States requested the WTO to establish a panel pursuant to Article 6 of the DSU. The United States claimed that Mexico had violated the provisions stated in GATT 1994 Article III.

The Dispute Settlement Body established the Panel on 6 July stating the following, as purpose of the establishment of the panel : "To examine, in the light of the relevant provisions of the covered agreements cited by the United States in document WT/DS308/4, the matter referred to the DSB by the United States in that document, and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements."

Canada, China, the European Communities, Guatemala and Japan participated in the panel as third parties.

Relevant Facts regarding the case:
The tax measures imposed by the Mexican government were: a) twenty percent tax on the transfer or importation of soft drinks and other beverages that use any sweetener other than cane sugar, b) twenty percent tax on services such as: agency, representation, brokerage, distribution, etc. when transferring or importing beverages sweetened with any kind of sweetener except for cane sugar, c) and some other requirements imposed to taxpayers regarding the above mentioned taxes.

High fructose corn syrup (HFCS) comprised one hundred percent imports of sweeteners from the US to Mexico and cane sugar is a domestically produced product that comprises ninety five percent of Mexican sweetener production. Considering the fact that the “soft drink tax” did not apply to beverages sweetened with cane sugar, it is pretty clear that Mexican sugar production industry was being favored by the imposition of these measures.

Articles I and III of the General Agreement on Tariffs and Trade 1994 (GATT) talk about the non-discrimination on like products. More specifically Article III establishes the national-treatment rule, which seeks the equal treatment to domestic and products imported from other states, establishing criteria such as: “No domestic laws should be applied to imported products to protect domestic producers from the competing “like” products. And imported products should receive treatment under national laws that "is no less favorable" than the treatment given to like domestic products”.

United State’s claims:
The issues concerning provisions established on Article III of the GATT 1994 that were claimed by the United States were the following: (i) imposing an excessive tax on an imported product compared to taxes applied to a “like” domestic product, (ii) imposing a tax to an imported product that is directly competitive or...
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