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The role of regulatory purpose under Articles III: 2 and 4 – toward consistency between negotiating history and WTO jurisprudence

Published online by Cambridge University Press:  27 January 2012

WEIHUAN ZHOU
WEIHUAN ZHOU*
Affiliation:
Ph.D. Candidate, Sydney Law School
*
*Former Consultant, E-Learning Unit of ITTC, WTO. Email: [email protected]
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Abstract

After years of debate, the issues of whether and where (i.e. under which legal element) regulatory purposes should be considered under Article III:2 and Article III:4 of the GATT – the most invoked provisions of the National Treatment rule – remain unsolved. This article submits that the preparatory work of the National Treatment rule provides significant interpretative guidance on the issues. In relation to Article III:2, 2nd sentence and Article III:4, the WTO jurisprudence has achieved consistency with the interpretative guidance. However, by expanding the reach of Article III:2, 1st sentence to origin-neutral fiscal measures whereas rejecting the relevance of regulatory purposes to the determination of whether such measures are in violation of that sentence, the WTO judges have failed to respect the functions of Article III:1 and Article III:2, 1st sentence as contemplated by the draftsmen. To remedy this failure, this article proposes that the WTO adjudicators should either approve formal purpose inquiries under Article III:2, 1st sentence, or, alternatively, confine the application of that sentence to origin-specific measures only.

Type
Review Article
Information
World Trade Review , Volume 11 , Issue 1 , January 2012 , pp. 81 - 118
Copyright
Copyright © Weihuan Zhou 2012

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References

1 Vienna Convention on the Law of Treaties 1969, 23 May 1969, 1155 UNTS (United Nations Treaty Series) 331.

2 One well-known exception is Professor Jackson's momentous work exploring the GATT system and its key rules on the basis of the preparatory work of the GATT. However, Professor Jackson did not address these negotiating materials with particular relevance to the issues raised in this article. See Jackson, John H., World Trade and the Law of the GATT (The Bobbs-Merrill Company, 1969) at 273–303Google Scholar.

3 In a recent speech, the current Director General of the WTO Secretariat, Pascal Lamy, has re-stressed the significance of this tension by stating that ‘[t]he multilateral trading system of the future will … have to address … [t]he blurring of the edges between trade policy and others such as exchange rate policies, climate change policies, food security policies or energy policies’. See WTO News, ‘Lamy looks at the multilateral trading system of the future’ (6 September 2011), available at http://www.wto.org/english/news_e/sppl_e/sppl205_e.htm (visited 1 October 2011).

4 See Horn, Elsa and Mavroidis, Petros, ‘Still Hazy After All These Years: The Interpretation of National Treatment in the GATT/WTO’ (2004) 15(1) European Journal of International Law 39–69CrossRefGoogle Scholar at 40.

5 See, for example, Hudec, Robert E., ‘GATT/WTO Constraints on National Regulation: A Requiem for an “Aim and Effects” Test’ (1998) 32 International Lawyer 619–649 at 620Google Scholar; Jackson, John H., ‘World Trade Rules and Environmental Policies: Congruence or Conflict?’ (1992) 49 Washington and Lee Law Review 1227–1278Google Scholar at 1232; Trachtman, Joel P., ‘Trade and…Problems, Cost–Benefit Analysis and Subsidiarity’ (1998) 9(1) European Journal of International Law 32–85CrossRefGoogle Scholar at 33.

6 GATT Panel Report, United States – Measures Affecting Alcoholic and Malt Beverages, DS23/R, adopted 19 June 1992, para. 5.25.

7 Ibid., para. 5.72.

8 GATT Panel Report, United States – Taxes on Automobiles, DS31/R, 11 October 1994, unadopted.

9 Panel Report, Japan – Taxes on Alcoholic Beverages, WT/DS8/R, WT/DS10/R, WT/DS11/R, adopted 1 November 1996, paras. 6.16–17; Appellate Body Report, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996 (Japan–Alcoholic Beverages II).

10 See Hudec, above n. 5, at 622.

11 Roessler, Frieder, ‘Diverging Domestic Policies and Multilateral Trade Integration’, in Jagdish Bhagwati and Robert Hudec (eds.), Fair Trade and Harmonization: Prerequisites for Free Trade? (Cambridge, MA: MIT Press, 1996) vol. II, 21–56 at 30. Certainly, there can be an argument that if the limited nature of Article XX is one of the major causes of the problem, then it should be up to the WTO Members to decide (i.e. by negotiations) whether Article XX should be broadened to cover other policy justifications. However, the fact that Article XX remains unchanged since the inception of the GATT suggests strongly that such amendment may unlikely occur. More importantly, as will be argued below, the preparatory work of the NT rule suggests that the NT rule itself was originally negotiated with regulatory purposes of origin-neutral measures in mind, and, therefore, the fact that Article XX has been left as what it was should not be a big factor in preventing the WTO tribunals from interpreting the NT rule as to mandate purpose inquiries.

12 Article 3.2 of the DSU provides that ‘The Members recognize that it serves to preserve the rights and obligations of Members under the covered agreements, and to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law.’ The Appellate Body has acknowledged that the interpretative methodology set out in Articles 31 and 32 of the Vienna Convention ‘has attained the status of a rule of customary or general international law’ to which the WTO tribunals are mandated to adhere in interpreting the covered agreements. See Appellate Body Report, United States – Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R, adopted 20 May 1996, p.17.

13 Article 32 of the Vienna Convention reads:

Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31

  1. (a)

    (a) leaves the meaning ambiguous or obscure; or

  2. (b)

    (b) leads to a result which is manifestly absurd or unreasonable.

14 See Ehring, Lothar, ‘De Facto Discrimination in World Trade Law National and Most-Favored-Nation Treatment – or Equal Treatment?’ (2002) 36(5) Journal of World Trade 921–977CrossRefGoogle Scholar at 945–946.

15 See Regan, Donald H., ‘Regulatory Purpose and “Like product” in Article III:4 of the GATT (With Additional Remarks on Article III:2)’ (2002) 36(3) Journal of World Trade 443–478CrossRefGoogle Scholar at 450.

16 See Panel Report, Japan–Alcoholic Beverages II, above n. 9, para. 6.16; Appellate Body Report, European Communities – Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/AB/R, adopted 25 September 1997, para. 216.

17 See Hudec, above n. 5, at 633; Roessler, Frieder, ‘Beyond the Ostensible – A Tribute to Professor Robert Hudec's Insights Under the National Treatment Provisions of the General Agreement on Tariffs and Trade’ (2003) 37(4) Journal of World Trade 771–781Google Scholar at 774, 776. Also see Mavroidis, Petros C., Trade in Goods: The GATT and the other Agreements Regulating Trade in Goods (Oxford University Press, 2007)Google Scholar at 251–252 (suggesting the WTO judges to ‘overcome the absence of explicit reference to Art. III:1, and interpret the in excess requirement in a contextual manner’).

18 See Panel Report, Japan–Alcoholic Beverages II, above n. 9, para. 6.17.

19 See Howse, Robert and Regan, Donald H., ‘The Product-Process Distinction: An Illusory Basis for Disciplining Unilateralism in Trade Policy’ (2000) 11(2) European Journal of International Law 249–290CrossRefGoogle Scholar at 266.

20 Generally, see Hudec, above n. 5; Roessler, above n. 17. See also Regan, above n. 15, at 444–449.

21 See Pauwelyn, Joost, ‘The Unbearable Lightness of Likeness’, in Marion Panizzon, Nicole Pohl, and Pierre Sauvé (eds.), GATS and the Regulation of International Trade in Services (Cambridge University Press, 2008) 358–369 at 362. See also Horn and Mavroidis, above n. 4, at 60.

22 See Jackson, above n. 2, at 22.

23 For interpretations of the NT rule, see Appellate Body Report, Japan–Alcoholic Beverages II, above n. 9, pp. 17, 24; Appellate Body Report, Canada – Certain Measures Concerning Periodicals, WT/DS31/AB/R, adopted 30 July 1997, p. 34; Panel Report, Korea – Taxes on Alcoholic Beverages, WT/DS75/R, WT/DS84/R, adopted 17 February 1999, para. 10.38; Appellate Body Report, WT/DS75/AB/R, WT/DS84/AB/R, adopted 17 February 1999, para. 42 (Korea–Alcoholic Beverages). For interpretations of other GATT/WTO rules, see Appellate Body Report, United States – Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R, adopted 6 November 1998, para. 157; Panel Report, United States – Anti-Dumping Act of 1916, Complaint by the European Communities, WT/DS136/R and Corr.1, adopted 26 September 2000, paras. 6.201–02. The GATT panels' reference to negotiating records of the GATT for the purpose of interpretation was more frequent. See Jackson, above n. 2, at 20.

24 The drafting history of the ITO Charter and the GATT has been published widely. See, for example, Wilcox, Clair, A Charter for World Trade (New York: The Macmillan Company, 1949)Google Scholar; Brown, William Adams, The United States and the Restoration of World Trade – An Analysis and Appraisal of the ITO Charter and the General Agreement on Tariffs and Trade (Washington, DC: The Brookings Institution, 1950)Google Scholar; Jackson, above n. 2; Irwin, Douglas A., Mavroidis, Petros C., and Sykes, Alan O., The Genesis of the GATT (New York: Cambridge University Press, 2008)CrossRefGoogle Scholar.

25 See London Report, UN Doc. E/PC/T/33 (1946) at 54.

26 See UN Doc. E/PC/T/C.II/W.2 (29 October 1946).

27 Ibid., at 3–6 (the statements by delegates for the US, Brazil, Canada, India, Netherland and the UK).

28 Ibid., at 3–5 (the statements by delegates for Canada, India and the US).

29 Ibid., at 5.

30 Ibid., at 5.

31 Ibid., at 4.

32 Ibid., at 4–5.

33 See UN Doc. E/PC/T/C.II/W.5 (31 October 1946) at 4–5.

34 See UN Doc. E/PC/T/C.II/64 (22 November 1946) at 3.

35 See UN Doc. E/PC/T/C.II/W.14 (4 November 1946) at 4 (the Indian delegate expressed the view that the revised draft ‘was far more clearly and concisely worded than the original’).

36 For a subsequent redraft, see UN Doc. E/PC/T/C.II/54 (16 November 1946) at 4–6. For the adoption of Article 9, see UN Doc. E/PC/T/C.II/56 (20 November 1946) at 1.

37 See London Report, E/PC/T/33, above n. 25, at 28.

38 See UN Doc. E/PC/T/C.6/55 (5 February 1947) at 2–5. Also see UN Doc. E/PC/T/C.6/55/Rev.1 (11 February 1947) at 2–5.

39 Ibid., E/PC/T/C.6/55/Rev.1, at 2–3.

40 Ibid., at 3.

41 Ibid., at 6.

42 See UN Doc. E/PC/T/C.6/97/Rev.1 (22 February 1947) at 6–12. The final New York Draft was contained in New York Report, UN Doc. E/PC/T/34 (5 March 1947) at 10–11.

43 See UN Doc. E/PC/T/W/23 (6 May 1947) at 1. Also see UN Doc. E/PC/T/W/28 (7 May 1947) at 1–2.

44 See UN Doc. E/PC/T/A/PV/9 (5 June 1947) at 3–4.

45 Ibid., at 12.

46 Ibid., at 5.

47 Ibid., at 7.

48 Ibid., at 7. Also see UN Doc. E/PC/T/A/SR/9 (5 June 1947) at 2.

49 There was another condition for the application of this provision; that is, that there must be no substantial production of ‘like’ domestic products. This condition was explicitly removed subsequently in Havana. See below n. 74 and accompanying text.

50 See Hearings before the Committee on Finance United States Senate, part 1 (Testimony), United States Government Printing Office Washington, 1947, pp. 335–337, cited in Melloni, Mattia, The Principle of National Treatment in the GATT: A Survey of the Jurisprudence, Practice and Policy (Bruylant, 2005)Google Scholar at 25.

51 For a summary of the concurring and opposing views, see UN Doc. E/PC/T/W/181 (9 June 1947) at 1–3.

52 See E/PC/T/A/PV/9, above n. 44, at 5.

53 Ibid., at 6.

54 Ibid., at 6.

55 Ibid., at 15, 17.

56 Ibid., at 8, 11–12.

57 Ibid., at 8.

58 Ibid., at 8.

59 Ibid., at 11.

60 See E/PC/T/W/181, above n. 51, at 3.

61 See UN Doc. E/PC/T/178 (16 August 1947) at 12–14.

62 See UN Doc. E/PC/T/A/PV/43 (18 August 1947).

63 See UN Doc. E/PC/T/TAC/PV/10 (4 September 1947).

64 Ibid., at 3–39. To avoid repetition of the debates in the Preparatory Committee of the ITO Charter, the GATT Committee decided that the discussion was conducted on the basis that no amendments to the substance of the drafted NT clause were to be accepted and therefore negotiators could only consider accepting or abandoning it entirely. After lengthy discussions, negotiators agreed to incorporate the NT rule into the GATT as a whole, with the understanding that negotiations on the NT rule were to be continued in the Havana session. For the approval of the NT clause for the GATT, see UN Doc. E/PC/T/TAC/PV/26 (23 September 1947).

65 See Geneva Report, UN Doc. E/PC/T/186 (10 September 1947) at 18–19.

66 See UN Doc. E/CONF.2/C.3/SR.11 (16 December 1947) at 6.

67 Ibid., at 1.

68 See, for example, UN Doc. E/CONF.2/C.3/6 (8 December 1947) (the delegates for China and Chile maintained their positions in Geneva).

69 See UN Doc. E/CONF.2/C.3/A/White Paper (5 February 1948) at 19.

70 Ibid., at 14–18.

71 Ibid., at 16.

72 Ibid., at 1–5.

73 The amendments of the NT rule in Havana were subsequently incorporated in totality into Article III of the GATT. The treaty instrument that gave effect to the amendments was the Protocol Modifying Part II and Article XXVI of the GATT, which entered into force 14 December 1948. See General Agreement on Tariffs and Trade, Analytical Index: Guide to GATT Law and Practice (GATT: Geneva, 6th edn, 1994) p. 211Google Scholar. However, the Havana Report of the NT clause contained no substantial changes relevant to the issues raised in this article. See Final Act and Related Documents, United Nations Conference on Trade and Employment held at Havana, Cuba from 21 November 1947 to 24 March 1948, ICITO 1/4 (March 1948).

74 See UN Doc. E/CONF.2/C.3/W.52 (13 February 1948) at 8. This change demonstrates that Article 18(2), 2nd sentence is applicable to implicit discrimination irrespective of whether there is substantial production of ‘like’ domestic products. See Bhala, Raj, Modern GATT Law: A Treatise on the General Agreement on Tariffs and Trade (London: Sweet & Maxwell, 2005)Google Scholar at 118.

75 See, for example, ibid., at 8–10 (the Norwegian delegate, the Chinese delegate, and the Cuban delegate withdrew their reservations on paragraph 1 of the Geneva draft).

76 However, one may argue that it might be the case that Article III:1 was reinserted to deal with internal protective measures that are not covered by Articles III:2 and 4. This argument should not be accepted. Based on the analysis of preparatory work, most developing countries favoured a narrow reading of the NT rule. Even the US and the UK delegates who insisted on the extension of the NT rule to encompass ‘DCSPs’ showed no intention to further widen the scope of the NT rule. Thus, as one commentator has correctly observed, ‘it seems unlikely that Article III:1 will be regarded as a “catch-all clause” that may impose obligations upon Member States in addition to those that follow from the other provisions of Article III.’ See Fauchald, Ole Kristian, Environmental Taxes and Trade Discrimination (London: Kluwer Law International, 1998)Google Scholar at 110–114.

77 See Panel Report, Japan–Alcoholic Beverages II, above n. 9, paras. 4.12–14, 6.16–17.

78 See Report of the Working Party on Border Tax Adjustments (BTA Report), L/3464, adopted on 2 December 1970, para. 18.

79 See Appellate Body Report, Japan–Alcoholic Beverages II, above n. 9, p. 21.

80 Ibid.

81 Panel Report, European Communities – Measures Affecting Asbestos and Asbestos-Containing Products, WT/DS135/R and Add.1, adopted 5 April 2001, as modified by Appellate Body Report; Appellate Body Report, WT/DS135/AB/R, adopted 5 April 2001 (EC–Asbestos).

82 See Mavroidis, above n. 17, at 253.

83 See Appellate Body Report, Korea–Alcoholic Beverages, above n. 23, para. 118.

84 See Pauwelyn, above n. 21, at 362–363.

85 Panel Report, Chile – Taxes on Alcoholic Beverages, WT/DS87/R, WT/DS110/R, adopted 12 January 2000, as modified by Appellate Body Report; Appellate Body Report, WT/DS87/AB/R, WT/DS110/AB/R, adopted 12 January 2000 (Chile–Alcoholic Beverages).

86 See Panel Report, Japan–Alcoholic Beverages II, above n. 9, paras. 2.1–2.3.

87 See Appellate Body Report, Japan–Alcoholic Beverages II, above n. 9, pp. 27, 29.

88 See Hudec, above n. 5, at 631; Howse and Regan, above n. 19, at 265; Regan, above n. 15, at 477.

89 See Howse and Regan, above n. 19, at 265; Mavroidis, above n. 17, at 231.

90 See Panel Report, Chile–Alcoholic Beverages, above n. 85, paras. 2.1–4, 7.155. Traditionally, Chile applied a higher excise tax rate on whiskey than that on pisco. The panel found that, since the term ‘pisco’ referred to certain Chile-produced alcoholic beverages only, the old tax system was discriminating against relevant foreign alcoholic beverages at issue in favour of domestic pisco.

91 The lowest rate was 27%, which was applicable to all spirits with alcohol contents at or below 35°. For each degree of alcohol content in excess of 35°, an additional 4% tax was applied. The highest rate was set at 47% to which all spirits with alcohol contents over 39° were subject. Ibid., paras. 2.5–6.

92 See Appellate Body Report, Chile–Alcoholic Beverages, above n. 85, para. 71.

93 Ibid., para. 62.

94 Ibid., para. 71.

95 Panel Report, Dominican Republic – Measures Affecting the Importation and Internal Sale of Cigarettes, WT/DS302/R, adopted 19 May 2005, as modified by Appellate Body Report; Appellate Body Report, WT/DS302/AB/R, adopted 19 May 2005 (Dominican Republic–Cigarettes).

96 Panel Report, European Communities – Measures Affecting the Approval and Marketing of Biotech Products, WT/DS291/R, WT/DS292/R, WT/DS293/R, adopted 21 November 2006 (EC –Biotech Products).

97 See Panel Report, EC–Asbestos, above n. 81, paras. 2.3–4.

98 See Panel Report, EC–Asbestos, above n. 81, paras. 8.3–5.

99 See Appellate Body Report, EC–Asbestos, above n. 81, paras. 96, 99; Appellate Body Report, Japan–Alcoholic Beverages II, above n. 9, p. 25.

100 See Appellate Body Report, EC–Asbestos, above n. 81, paras. 101–102; Appellate Body Report, Japan–Alcoholic Beverages II, above n. 9, p. 21.

101 See Appellate Body Report, EC–Asbestos, above n. 81, para. 117; Appellate Body Report, Japan–Alcoholic Beverages II, above n. 9, p. 25 (upholding the panel's ruling that it was essential to evaluate evidence in relation to the end-uses of the products); Appellate Body Report, Korea–Alcoholic Beverages, above n. 23, para. 114 (stating that the competitive relationship between products should be assessed from the perspective of consumers, thereby highlighting the significance of evidence relating to consumers' tastes and habits).

102 See Appellate Body Report, EC–Asbestos, above n. 81, para. 123; Appellate Body Report, Korea–Alcoholic Beverages, above n. 23, paras. 114–17, 137.

103 See Appellate Body Report, EC–Asbestos, above n. 81, paras. 102–103.

104 Ibid., para. 113.

105 See Footer, Mary and Zia-Zarifi, Saman, ‘EC–Asbestos: The World Trade Organization on Trial for its Handling of Occupational Health and Safety Issues’ (2002) 3(1) Melbourne Journal of International Law 120–142Google Scholar at 142; McConnell, Irene, ‘The Asbestos Case at the World Trade Organization: The Treatment of Public Health Regulations under the General Agreement on Tariffs and Trade 1994 and the Agreement on Technical Barriers to Trade’ (2002) 10(1) Tulsa Journal of Comparative and International Law 153–182Google Scholar at 176–177.

106 See Appellate Body Report, EC–Asbestos, above n. 81, paras. 113–15, 122.

107 Ibid., paras. 114, 122, 125–126.

108 Ibid., paras. 118, 125–126.

109 See Panel Report, Korea–Alcoholic Beverages, above n. 23, para. 10.44; Appellate Body Report, para. 120.

110 See Appellate Body Report, EC–Asbestos, above n. 81, para. 152.

111 See Howse, Robert and Tuerk, Elisabeth, ‘The WTO Impact on Internal Regulations: A Case Study of the Canada–EC Asbestos dispute’, in Grainne de Burca and Joanne Scott (eds.), The EU and the WTO: Legal and Constitutional Issues (Oxford: Hart Publishing 2001) 283–328 at 299; Porges, Amelia and Trachtman, Joel P., ‘Robert Hudec and Domestic Regulation: The Resurrection of Aim and Effects’ (2003) 37(4) Journal of World Trade 783–799Google Scholar at 796.

112 See Appellate Body Report, EC–Asbestos, above n. 81, para. 100.

113 See Porges and Trachtman, above n. 111, at 796–797; Howse and Tuerk, above n. 111, at 299.

114 See Ehring, above n. 14, at 943–946. Through a comprehensive review of GATT/WTO NT jurisprudence, Ehring argued that the tribunals have applied two different approaches to determining the effect of an internal measure – a diagonal test and an asymmetric impact test. Ehring has interpreted the Appellate Body's observation in EC–Asbestos as indicating an adoption of the latter approach in dealing with origin-neutral measures. This article focuses on the role of policy aim, and does not deal with the issue of how to determine effect.

115 See Panel Report, Dominican Republic–Cigarettes, above n. 95, para. 2.6.

116 Ibid., para. 4.17.

117 Ibid., para. 7.295.

118 Ibid., Appellate Body Report, para. 96.

119 See Pauwelyn, above n. 21, at 365–366.

120 See Panel Report, EC–Biotech Products, above n. 96, para. 2.1.

121 Ibid., paras. 7.2499–2503.

122 Ibid., para. 7.2514.

123 See Appellate Body Report, Japan–Alcoholic Beverages II, above n. 9, pp. 18(H.1) and 24.

124 Ibid., pp. 19–20.

125 Ibid., Panel Report, para. 6.23.

126 For example, in Japan–Alcoholic Beverages II, the panel found that vodka and shochu were ‘like product’ on the ground that, besides sharing common end-uses in general, they were virtually identical in physical characteristics – the only difference being the media used for filtration. However, physical differences in additives, ingredients, and appearance arising from manufacturing processes were found sufficient to render shochu and the other foreign alcoholic beverages ‘unlike’. In making this finding, the panel did not explain why physical differences in the aspects described above were significant to disqualify the products from likeness. In other words, the issue of what physical characteristics would matter in determining ‘like product’ remains unsettled. See Panel Report, Japan–Alcoholic Beverages II, above n. 9, para. 6.23.

127 See Wille, Serena B., ‘Recapturing a Lost Opportunity: Article III:2 GATT 1994 Japan–Taxes on Alcoholic Beverages’, Jean Monnet Working Paper 11–97, NYU School of Law, part III, at 2.

128 In Mexico–Soft Drinks, Mexico imposed two internal taxes on soft drinks and other beverages sweetened with non-cane sugar. In the context of Article III:2, 1st sentence, the Mexican measure was challenged as subjecting beet sugar to a higher tax than that applied to cane sugar. See Panel Report, Mexico – Tax Measures on Soft Drinks and Other Beverages, WT/DS308/R, adopted 24 March 2006, as modified by Appellate Body Report, paras. 2.2, 3.1 (Mexico–Soft Drinks).

129 See Appellate Body Report, EC–Asbestos, above n. 81, para. 100.

130 See Panel Report, Mexico–Soft Drinks, above n. 128, paras. 8.53, 8.55–58.