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DISPUTE SETTLEMENT: DISPUTE DS302

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

This summary has been prepared by the Secretariat under its own responsibility. The summary is for general information only and is not intended to affect the rights and obligations of Members.

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See also: One-page summary of key findings of this dispute

Appellate Body and Panel Reports Adopted

Complaint by Honduras.

On 8 October 2003, Honduras requested consultations with the Dominican Republic concerning certain measures affecting the importation and internal sale of cigarettes. This request is a new and expanded version of a complaint filed by Honduras on 28 August 2003 (WT/DS300/1).

According to Honduras, the Dominican Republic:

• applies special rules, procedures and administrative practices to determine the value of imported cigarettes for the purpose of applying the Selective Consumption Tax (inter alia, in certain instances, considers the value of imported cigarettes to be equal to the value of the “nearest similar” product in the domestic market), and fails to establish and apply transparent and generally applicable criteria for determining the value of imported cigarettes (inter alia, fails to establish and apply such criteria for the identification of the “nearest similar” product);
   
• does not publish the surveys conducted by the Central Bank that are to be used to determine the value of cigarettes for the purpose of applying the Selective Consumption Tax;
   
• accords conditions of competition to imported cigarettes that are less favourable than those accorded to domestic cigarettes by requiring that stamps be affixed to cigarettes packages in the territory of the Dominican Republic;
   
• entails costs and administrative burdens hindering the importation of cigarettes by requiring importers of cigarettes to post a bond;
   
• levies a transitional surcharge for economic stabilization of 2% of the CIF value of the imported goods;
   
• levies a foreign exchange fee of 4.75% of the value of the imported merchandise.

Honduras considers that these Dominican Republic’s measures are inconsistent with Articles II:1(b), III:2, III:4, X:1, X:3(a), XI:1, and XV:4 of GATT 1994.

On 23 October 2003, Guatemala and Nicaragua requested to join the consultations. On 28 October 2003, the Dominican Republic accepted both requests.

On 8 December 2003, Honduras requested the establishment of a panel. At its meeting on 19 December 2003, the DSB deferred the establishment of a panel. Further to a second request to establish a panel by Honduras, the DSB established a panel at its meeting on 9 January 2004. China, Chile, the European Communities and the United States reserved their third-party rights. On 19 January 2004, Guatemala, Nicaragua and El Salvador reserved their third-party rights.

On 17 February 2004, the Panel was composed. On 23 August 2004, the Chairman of the Panel informed the DSB that the Panel expected to complete its work by October 2004.

On 26 November 2004, the Panel report was circulated to Members. The Panel found that:

• The transitional surcharge and the foreign exchange fee imposed by the Dominican Republic are inconsistent with Article II:1(b) of GATT 1994. The foreign exchange fee is not justified under Article XV:9(a) of GATT 1994;
   
• The stamp requirement imposed on cigarettes by the Dominican Republic is inconsistent with Article III:4 of GATT 1994;
   
• Honduras did not demonstrate that the bond requirement imposed on cigarette importers by the Dominican Republic violates either Article X:1 or Article III:4 of GATT 1994; and
   
• Before the legislation was amended in January 2004, the Dominican Republic imposed its Selective Consumption Tax on imported cigarettes in a manner inconsistent with Articles III:2 and X of GATT 1994.

The Panel then recommended that the Dominican Republic bring its measures (namely, the foreign exchange fee, the transitional surcharge and the stamp requirement) into conformity with its WTO obligations.

On 24 January 2005, the Dominican Republic notified its intention to appeal certain issues of law and legal interpretations developed by the Panel. On 7 February 2005, Honduras notified its intention to appeal certain issues of law and legal interpretations developed by the Panel.

On 22 March 2005, the Chairman of the Appellate Body informed the DSB that the Appellate Body would not be able to circulate its Report within the 60-day period due to the time required for completion and translation of the Report, and that it estimated it would be circulated to WTO Members no later than 25 April 2005.

On 25 April 2005, the report of the Appellate Body was circulated to Members. The Appellate Body upheld three findings but reversed four of the Panel’s legal findings. The Appellate Body found:

• The stamp requirement imposed on cigarettes by the Dominican Republic is not justified under the exception of Article XX(d) of the GATT 1994;
    
• The bond requirement imposed on cigarette importers by the Dominican Republic violates Article III:4 of GATT 1994.

At its meeting on 19 May 2005, 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 13 June 2005, the Dominican Republic announced its intention to implement the recommendations and rulings of the DSB, and indicated that it would need a reasonable period of time to implement the recommendations and rulings of the DSB.  Both parties failed to agree on a reasonable time of period for implementation in accordance with Article 21.3(b) of the DSU. On 12 July 2005, Honduras requested that the reasonable period of time be determined through binding arbitration pursuant to Article 21.3(c) of the DSU.  On 21 July 2005, both parties jointly requested Mr. John Lockhart to act as arbitrator pursuant to Article 21.3(c) of the DSU, and on 22 July 2005 Mr. Lockhart accepted the appointment to serve as arbitrator.  On 29 July 2005, the parties requested that the arbitration proceedings be suspended so as to allow the parties to further explore the possibility of reaching an agreement on a reasonable period of time for implementation. On 4 August 2005, the Arbitrator agreed to treat the matter as suspended until further notice.  On 16 August 2005, the parties jointly informed the Arbitrator that they had mutually agreed that the Dominican Republic shall bring the measure at issue into conformity within 24 months from 19 May 2005. On 29 August 2005, the Arbitrator’s Report was circulated to the Members.

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