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Case Study. Dominican Republic – Measures Affecting the Importation and Internal Sale of Cigarettes 蔡奉真、黃琳君、李炎蒼. Parties and measure in dispute. parties : Dominican Republic  Honduras Measure in dispute : 一、多明尼加要求於該國境內銷售之香菸,不論是否進口產品,包裝上均應貼上印花,以證明已經繳稅得以合法銷售。

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Case Study

Dominican Republic – Measures Affecting the Importation and Internal Sale of Cigarettes

蔡奉真、黃琳君、李炎蒼


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Parties and measure in dispute

  • parties:

  • Dominican Republic  Honduras

  • Measure in dispute:

  • 一、多明尼加要求於該國境內銷售之香菸,不論是否進口產品,包裝上均應貼上印花,以證明已經繳稅得以合法銷售。

  • 二、多明尼加針對香菸的進口或銷售,要求進口商或國內製造商均應提供相同金額的保證金,以保證稅款的繳納。


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事件經過

  • 2004/1/9 Panel established

  • 2004/11/26Panel Report

  • 2005/1/24 Dominican Republic notified the DSB of its intention to appeal

  • 2005/1/31 Dominican Republic filed its appellant’s submission

  • 2005/2/7 Honduras notified the DSB of its intention to appeal

  • 2005/3/8 Honduras filed its other appellant’s submission

  • 2005/4/25 Appellate Body Report


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Issues Raised in this Appeal

  • 1.多明尼加印花措施的必要性

  • 2.panel是否未審酌多明尼加提出之證據

  • 3.panel對於宏都拉斯所提,多明尼加保證金措施造成的效果判斷是否有誤

  • 4.panel對於宏都拉斯對多明尼加保證金措施之主張是否適當

  • 5.panel對於多明尼加收稅時機之相關判斷是否有誤


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相關法條

  • 1.GATT 1994 Article XX(d): Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures: (d) necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement, including those relating to customs enforcement, the enforcement of monopolies operated under paragraph 4 of Article II and Article XVII, the protection of patents, trade marks and copyrights, and the prevention of deceptive practices


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DSU Article 11: Function of Panels

  • The function of panels is to assist the DSB in discharging its responsibilities under this Understanding and the covered agreements. Accordingly, a panel should make an objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements, and make such other findings as will assist the DSB in making the recommendations or in giving the rulings provided for in the covered agreements. Panels should consult regularly with the parties to the dispute and give them adequate opportunity to develop a mutually satisfactory solution.


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Article III:National Treatment on Internal Taxation and Regulation

  • 4. The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. The provisions of this paragraph shall not prevent the application of differential internal transportation charges which are based exclusively on the economic operation of the means of transport and not on the nationality of the product.


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Abbreviations

  • Adjudicators and parties:

    • Panel: P

    • Appellate Body: AB

    • Dominican Republic: DR

    • Honduras: H


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The Necessity Analysis under Art.XX(d) in relation to the Tax Stamp Requirement


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Panel’s Decision

  • Stamp requirement: inconsistent with national treatment (Art. III.4)

  • Additional processes and cost for imported product, leads to imported cigarette being presented to final consumers in a less appealing manner. (DR did not appeal.)

    2. Falls within the scope of Art. XX(d)? (-)

  • Whether the measure is necessary to

    • Secure compliance with DR tax law

    • Fight tax evasion

    • Prevent smuggling


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Standards for analyzing “necessity”


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Arguments form DR

P erred in interpreting and applying the term “necessary”

Korea-Various Measures on Beef standard: weighing and balancing a series of factors

The trade impact

The importance of interest protected

The contribution of the measure

Alternative measure

In the presence of a “tax inspector” ensure the authentic tax stamps, reducing smuggling cigarettes

No reasonably available alternative: increase the risk of smuggling and tax evasion

Appeal (1/2)


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Arguments from H

DR’s claim should be rejected.

DR’s new decree: permit to affix tax stamp abroad no alternative measure?

AB: two –tier analysis

(1)provisional justification by reason of characterization of the measure under XX(a)~(j)

Art.XX(d)—Korea -beef

Secure compliance

Necessary(Korea-beef/ US-Section 337/EC-Asbestos )

(2)further appraisal under the introductory clause of Art.XX.

Appeal(2/2)


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AB’s Conclusion

1.the tax stamp is not “necessary” within the meaning of Art.XX(d) of the GATT, therefore, is not justified under Art.XX(d) of the GATT.

2. no need to complete legal analysis under Art.XX.


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The Conformity of the Examination of Evidence with Art.11 of the DSU


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Appeal(1/2)

  • DR’s argument

    • DR-8, DR-29 indicate that in the case of alcohol, there is smuggling of alcohol as well as the forgery of tax stamp.

  • AB

    • determination of the credibility and weight properly to be ascribed to a given piece of evidence is … left to the discretion of panel as the trier of facts. (EC-Hormones) P enjoys a “margin of discretion” as triers of fact

    • [P is] “not required to accord to factual evidence of the parties the same meaning and weight as do the parties.”(Australia-Salmon)


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Appeal(2/2)

  • AB does not “second-guess” the P in appreciating either evidentiary value of …studies or the consequences…(EC-Asbestos)

  • …inconsistency under Art.11…we must be satisfied that the P has exceeded the bounds of its discretion, …, in appreciation of the evidence.(US-Wheat Gluten)

    where participants…have failed to establish that a P exceeded the bounds of its discretion as trier of facts, the AB has not interfered with the findings of the P.


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AB’s Ruling


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AB’s Conclusion

  • P did not fail to comply with the obligations set out in Art.11 of the DSU.


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Art.III:4 of the GATT and the Bond Requirement


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Issue

  • Per-unit cost of the bond: cost of bond(5 million )/ volume of sale

  • Standard in determine “less favorable treatment”

    • Whether a measure modifies the conditions of competition in the relevant market to the detriment of imported products. (Korea-Various Measure on Beef)

    • Protection of the group of “like” domestic products.(EC-Abestos)


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AB’s Conclusion

1.Difference in per-unit cost of bond does not alter the conditions of competition, that fact does not constitute a less favorable treatment to imported products.

2.No violation of Art. III.4 no need to inspect Art.XX(d)


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Panel’s Consideration of the Bond Requirement “as such”

  • Art. 11 of the DSU & Art.III:4 GATT

  • Parties’ arguments

  • Panel’s statement

  • AB’s statement


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Art. 11 of the DSU

  • “…Accordingly, a panel should make an objective assessment of the matter before it, including an objective assessment of the facts of the case…”


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Art.III:4 GATT 1994

  • The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. The provisions of this paragraph shall not prevent the application of differential internal transportation charges which are based exclusively on the economic operation of the means of transport and not on the nationality of the product.


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Panel’s statement

  • For the reasons expressed above, the Panel is not convinced by Honduras's argument that the bond requirement results in a less favourable treatment for imported cigarettes, because for those cigarettes there is no liability that the bond requirement would serve to secure


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Honduras

the inconsistency of the bond requirement with Article III:4 of the GATT 1994 was that the bond requirement served to guarantee liability only for the Selective Consumption Tax and that such liability did not exist for importers, who must pay that tax in full at the time of importation.

Dominican

notwithstanding payment of the Selective Consumption Tax at the time of importation, the bond nevertheless served to secure payment of that tax in the event of an adjustment of the taxpayers' total liability at some point

although Article 376 of the Tax Code appears to refer only to the Selective Consumption Tax, in practice [the Dominican Republic] tax authority treats the bond as a guarantee of compliance with other internal tax obligations incumbent on the domestic producer and the importer of cigarettes,

Parties’ arguments


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AB’s statement

  • Chile – Price Band System

  • Panel found no reason to question the assertion of the Dominican Republic authorities…

  • US – Carbon Steel

  • we agree with Honduras that consideration of the express wording of the text of legislation establishing a measure is a fundamental element of an assessment of that legislation. That said, however, we see no merit in the proposition advanced by Honduras that a panel must limit itself


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Timing of Payment of the Selective Consumption Tax

  • Art.III:4 GATT 1994

  • Parties’ argument

  • Panel’s statement

  • AB’s statement


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Panel’s statement

  • ... that Honduras's claim regarding the different costs for domestic producers and importers arising from the time of payment of the Selective Consumption Tax is not directly related with the bond requirement and it is not within the Panel's terms of reference

  • Honduras' argument regarding the timing of payment for the Selective Consumption Tax and the two responses from the Dominican Republic as a whole


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Honduras

these contentions were simply arguments in support of its claim that the bond requirement violated Article III:4 of the GATT 1994

the Panel erred in treating its contentions regarding the timing of payment of the Selective Consumption Tax as a separate claim outside of the Panel's terms of reference

Dominican

the issue of the timing of payment of the Selective Consumption Tax is not dealt with in the legislative provisions identified by Honduras in connection with its claims against the bond requirement

Parties’ arguments


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Art.6.2 of the DSU

The request for the establishment of a panel shall be made in writing. It shall indicate whether consultations were held, identify the specific measures at issue and provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly

US – Carbon Steel

... two distinct requirements, namely identification of  the specific measures at issue,  and the provision of a  brief summary of the legal basis of the complaint  (or the  claims). Together, they comprise the "matter referred to the DSB", which forms the basis for a panel's terms of reference under Article 7.1 of the DSU

AB’s statement I


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AB’s statement II

  • Nothing prevented Honduras from raising such arguments before the Panel, even though these arguments were not set out in the panel request

  • Honduras' contentions represent an assertion that the timing of payment of the Selective Consumption Tax resulted in a violation of Article III:4 of the GATT 1994 in itself, these contentions comprised a separate  claim  that was not included in the panel request

  • we note that there is no obligation upon a panel to consider each and every argument put forward by the parties in support of their respective cases

  • because such a challenge was not included in the panel request, we see no error in the Panel's finding that such a matter was outside its terms of reference


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Conclusions I

  • upholds  the Panel's finding, that the tax stamp requirement is not justified under Article XX(d) of the GATT 1994

  • the Panel made an objective assessment of the facts of the case, as required by Article 11 of the DSU, in its examination of Exhibits DR-8 and DR-29

  • upholds  the Panel's finding that Honduras failed to establish that the bond requirement accords less favourable treatment to imported cigarettes than that accorded to like domestic products, in a manner inconsistent with Article III:4 of the GATT 1994


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Conclusions II

  • finds  that the Panel made an objective assessment of the matter before it, as required by Article 11 of the DSU, in its consideration of Honduras' claim against the bond requirement "as such"

  • finds no error  in the Panel's treatment of Honduras' contentions regarding the timing of payment of the Selective Consumption Tax


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Result

  • AB recommends  that the Dispute Settlement Body request the Dominican Republic to bring the tax stamp requirement, found in this Report and in the Panel Report as modified by this Report to be inconsistent with the GATT 1994, into conformity with its obligations under that Agreement if, and to the extent that, the said modifications to the tax stamp regime have not already done so

  • AB also  recommends  that the Dispute Settlement Body request the Dominican Republic to bring its other measures, found in the Panel Report as modified by this Report, to be inconsistent with the GATT 1994, into conformity with its obligations under that Agreement


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